Summary: Consumers will be encouraged to switch providers and competition authorities’ will have enhanced powers to address anti-competitive conduct and are to speed-up investigations according to measures set out in the Queen’s Speech on 18 May 2016. The measures will be laid out in the Better Markets Bill ("the Bill") that the UK government intends to bring before Parliament in the next year.
The Better Markets Bill
The purpose of the Bill is to “open up markets, boost competition, give consumers more power and choice and make economic regulators work better”. The main elements of the Bill are the following:
- consumer power: the Bill will encourage consumers to switch providers to “get a better deal”;
- environment for competition: decision-making in competition investigations is to be sped-up, competition authorities will receive yet more powers to address anti-competitive conduct and the “landscape” for economic regulation is to improve; and
- open markets: steps will be taken to ensure open and competitive markets including by acting quickly on the Competition and Market Authority’s final recommendations to promote competition in the energy market and simplifying regulatory processes.
The Bill aims to give consumers more power and choice through faster switching. The background notes to the Queen’s Speech note that “many households could save up to £390 a year by switching just three providers”.
Low consumer engagement and switching has repeatedly been identified as a concern in the regulated sectors. In the energy market investigation, the Competition and Markets Authority (the “CMA”) found that widespread consumer disengagement impedes competition in the retail market. In March 2016 the CMA published its provisional decision on remedies and its proposals included a range of measures to help and encourage a greater number of customers to benefit from switching to more competitively priced deals. One of these measures is the creation of an Ofgem-controlled database of disengaged customers who have been on a standard variable tariff for more than three years, which will allow rival suppliers to target their marketing to those customers.
In the retail banking investigation, the CMA provisionally found that low levels of customer engagement and barriers to switching in the markets for personal and business current accounts and SME lending give rise to adverse effects on competition. In the CMA’s provisional decision on remedies, published on 17 May 2016, it stated that banks need to provide customers with the right information so that they can easily find out which provider and type of account offers the best value. The CMA also proposed to push the development of new online comparison tools and improve the current account switch service to make switching banks more straightforward and give customers more awareness of, and confidence in, the process.
The significant resources invested in the CMA's energy market and retail banking investigations (16% of front line resources) suggest that the CMA has every interest in ensuring that the Bill’s aims in relation to switching are realised.
Competition investigations and enforcement
The Bill proposes to speed-up competition investigations and to give competition authorities enhanced enforcement powers.
One of the aims behind the changes to the competition regime implemented in April 2014 was to improve the speed and predictability of decision-making for businesses. This came on the back of a National Audit Office (“NAO”) report in 2010 in which it noted that that all but one market investigation reference (“MIR”) had taken longer than the 11-14 months expected in the Competition Commission’s original planning assumptions, with only one of the six completed MIRs, at the time of the review, reporting appreciably before the 24-month statutory deadline. Despite the changes implemented in April 2014, including the reduction of the statutory deadline for MIRs to 18 months (with a 6-month extension in certain circumstances) and the six-month time limit for the CMA to implement remedies, the Bill’s proposal makes it clear that the CMA needs to take further steps to speed-up investigations.
The changes to the competition regime implemented in April 2014 gave the CMA enhanced powers in relation to certain aspects of enforcement. We await further detail as to how the Bill will further enhance competition authorities’ enforcement powers, but it is likely that the aim of the proposals is to further facilitate and increase enforcement. The CMA recently published its second annual concurrency report in which it reported on a decrease in competition enforcement in the regulated sectors in 15/16. Although the enhanced concurrency arrangements which were brought into force on 1 April 2014 were meant to encourage greater competition enforcement, only two new Competition Act 1998 (“CA98”) investigations were initiated in the regulated sectors in 15/16, down from six in 14/15 and lower than the average of 2.9 CA98 investigations per year launched during the period 2005 to 2013. More generally, in its 2016 report on the UK competition regime, the NAO noted that the “regime faces big challenges in increasing the low number of enforcement decisions” with the level of fines imposed significantly less than in other developed countries. The NAO recommended that the UK Government assess the fundamental reasons for low enforcement and caseflow and consider the case for removing any legislative or institutional barriers. The Bill appears to be a direct response to the NAO’s recommendation.