The much-anticipated independent report by John Penrose MP into how UK competition policy should be reformed to meet the UK Government’s objective of promoting a dynamic, innovation-driven post-Brexit and post-COVID-19 economy was published yesterday. It contains a wide-ranging set of recommendations for updating the UK’s competition and consumer law regime which, if implemented, would constitute the biggest shake-up since the creation of the Competition and Markets Authority (CMA) in 2014.
From giving the CMA the same toolkit to prosecute consumer law cases that it has for competition law investigations, to recommending an end-to-end review of the entirety of the CMA’s and Competition Appeal Tribunal's (CAT) procedures by a multi-disciplinary taskforce, to reforming sectoral regulation and the introduction of County Competition Courts, the report is ambitious in the breadth and scope of its recommendations.
This blog post sets out some of the main proposals.
Improving consumer outcomes and cutting red tape
Essentially, the report has two primary aspirations – to improve choices and outcomes for consumers, and to reduce regulation:
- The title – Power to the People – is a clear statement of Mr Penrose’s desire to strengthen consumer choice and competition in order to ensure that “markets work for people, not the other way around”.
- A consistent theme throughout the report is making the most of the opportunities provided by Brexit, including through a revived, stronger Better Regulation regime which would see the cutting of red tape and a "one-in-two-out" target to regulation. In the words of the report, a free-trading, global post-Brexit Britain should aim to have one of the best competition and consumer regimes in the world.
If all of Mr Penrose’s proposals were to be adopted, it would result in a significantly increased concentration of power in the CMA at a time when the CMA is in the process of adapting to its new post-Brexit caseload and the challenges of a digitising economy. Mr Penrose envisages the CMA becoming a "micro-economic sibling" to the Bank of England’s public macro-economic role, responsible for tracking progress of UK competition and consumer rights, as well as “supply-side reforms and productivity improvements”. The CMA would have an enhanced toolkit for enforcing consumer law, and would also progressively take over sectoral regulators’ responsibilities, leaving each regulator over time with a smaller focus on its industry’s core network monopoly.
The Government will now consider the recommendations, which are not Government policy but have already been welcomed by Chancellor Rishi Sunak and new Business Secretary Kwasi Kwarteng. Unsurprisingly, the CMA has also welcomed the call for new legislation to strengthen its powers and to make the competition and consumer regime "stronger, swifter and more flexible".
Changes to the CMA’s toolkit and role
The report is (as above) wide-ranging and recommends significant changes to the CMA’s competition and consumer law powers and role, including:
- a new Competition Act be introduced to update and modernise institutions for the new digital economy.
- further work to strengthen and speed up enforcement of consumer and competition law by allowing the CMA to impose tougher penalties in line with international norms to companies that do not cooperate fully in investigations. Turnover-based penalties (of between 1% and 5%) could be much higher than the current £30,000 maximum.
- the CMA’s civil consumer enforcement powers should be updated to bring them in line with its competition powers (see further below). These recommendations, echoing those made by the CMA's former Chairman in 2019, would allow the CMA to decide consumer law cases itself (instead of seeking an enforcement order from a court) and impose fines as it does in competition law cases.
- the CMA should be given the flexibility to accept undertakings at any stage in market studies, market investigations and both Phase 1 and Phase 2 of merger investigations.
- although the previously announced introduction of the Digital Markets Unit (DMU) is to be welcomed according to Mr Penrose, care should be taken to ensure that its increased powers do not bring more red tape and regulatory burdens. The report therefore recommends that:
- these new powers be ring-fenced tightly to prevent "regulatory creep" and that existing CMA powers be used wherever possible; and
- the powers apply only to individual firms that own and run new network and data monopolies and, to reinforce the limited use of these powers, the DMU should be renamed the "Network & Data Monopolies Unit" (NDMU).
- the CMA should publish an annual "State of Competition and Consumer Detriment" report which measures and analyses progress and problems across all sectors and regions.
Consumer protection proposals
The main consumer protection themes in the report concern giving consumers more power and choice to improve overall competition in the market. The priorities identified in this area are consistent with the CMA’s current focus on addressing misleading online commercial practices and its push for enhanced consumer protection powers. In this regard, it is notable that the report calls for stronger consumer protections laws on:
- the so-called “loyalty penalty” (whereby customers are said to be charged more over time for staying with the same supplier);
- unfair contractual terms (and the readability of contracts); and
- perceived attempts by digital businesses to “nudge” consumers into making decisions that aren’t necessarily in their best interests and/or to make it hard for them to exit contracts (so-called “sludge”), for example through the use of default options, hiding opt-out routes, creating an unreal sense of urgency to pressurise consumers into making purchases, and "subscription traps".
The report calls for new legislation, modelled on the Financial Conduct Authority’s current sector-specific rules, to require firms to offer the same prices to new and existing customers, as a means of combating the “loyalty penalty”.
Beyond this, the report encourages the CMA to:
- update its guidelines on what treating customers fairly (including "transactional fairness") means, to allow businesses and other stakeholders to understand what this means in practice. Here reference is made to the University of East Anglia’s Centre for Competition Policy’s idea of "transactional fairness" satisfying three criteria, in short "no deception", "no hindrance", and "public explanation", although it remains to be seen how this would supplement existing legal requirements on fairness;
- track whether price comparison tools are allowing all customers to make reliable and well-informed choices in digital markets. The report also discusses consumers’ ability to compare the price of notionally free products (in terms of the exchange of personal data to use the product), less interoperable services makes switching harder, and price discrimination - which the CMA also recently considered in its paper on "Algorithms: How they reduce competition and harm consumers" (see blog post here); and
- undertake a market investigation to assess how to quantify and respond to the use of "sludge" and identify what consumer protection rules and analytical techniques will be needed to protect consumers from evolving digital technologies. The report identifies the role of the DMU (or a future NDMU) in monitoring digital markets and encouraging switching.
The report also calls for local authority Trading Standards Services to be given powers to investigate both consumer protection and antitrust breaches, and for ring-fenced resources to be dedicated to improving their effectiveness.
Consistent with the recent trend we have seen towards greater international regulatory co-operation, the report also identifies the importance of the CMA pursuing cooperation arrangements with competition regulators in other markets and exchanging information to efficiently progress cases.
The Government has been due to publish a White Paper on consumer protection law and enforcement for some time; it had been expected in early 2021. If and when it is released, this may be the vehicle for more formal proposals to reflect the report’s recommendations.
A broader proposal is the creation of a taskforce to complete an end-to-end review and redesign of procedures and case management in CMA and CAT processes. The taskforce’s review is recommended to:
- have broad scope including changes to internal governance or statutory process requirements, from investigation and case launch to appeal; and
- propose reforms that resolve all but a small number of most complicated cases within weeks or months rather than years, be as predictably simple and certain as possible, and fulfil the "fair trial" requirements of Article 6 of the European Convention on Human Rights.
This desire for greater speed without diluting the robustness and fairness of decision-making is not a new aspiration. It will be interesting to see how the taskforce proposes reforms that strike a different but still effective balance to that which has been achieved until now.
Strikingly, Mr Penrose stops short of recommending more radical changes such as the introduction of a prosecutorial model for quasi-criminal enforcement cases or a mandatory notification regime for mergers, although the taskforce is encouraged to give further consideration to these options.
In addition, the report recommends simplifying the system for appealing sectoral regulators’ decisions so that any appeals which the CMA currently considers should be dealt with by the CAT.
State aid and industrial policy
The report recommends that post-Brexit, the UK should in general be very wary about aiding particular industries, with a strong steer that subsidies distort competition, and that there should be no Brexit dividend for “losers”.
While the report is cautious about political intervention in mergers, it does call on Ministers to develop new options for preventing fast-growing UK-based firms in fast-growing sectors from being “poached offshore for non-commercial reasons”. Mr Penrose does though recognise the challenges already contemplated by the National Security & Investment Bill in this regard: how to identify potentially problematic deals without damaging the UK’s attractiveness for foreign direct investment.
Now that the report has been released, there will be a keen focus on if and how Government chooses to interpret and implement these recommendations, particularly as it has not been quick to adopt similar (although in some cases more extensive) proposals made by the CMA’s former chairman, Andrew Tyrie.