The Government has confirmed that it will legislate in this Parliament to reform key aspects of UK competition and consumer protection law. There are reports that it is looking to bring these changes into force late next year – so businesses affected by it should start considering the implications now. These proposals are also being presented as a key part of the Government’s supply side measures to promote growth. But can tougher regulation bring economic benefits – and if so, how quickly can we expect to see a positive impact?
What will the reforms do?
The Digital Markets, Competition and Consumer Bill is expected to result in the Competition and Markets Authority (CMA) gaining significant new powers to (among other things):
- intervene in the tech sector with a view to promoting competition– see this briefing and the Government's subsequent response to consultation; and
- impose fines of up to 10% of turnover for breach of consumer protection law
The legislation is also expected to:
- make a raft of changes designed to streamline and improve the effectiveness of the existing competition law and merger control regimes; and
- tighten up the law on fake reviews and subscription contracts.
Same proposals, new timetable
The Government's recent confirmation in the Autumn Statement that it will legislate in this Parliament to implement these reforms marks an acceleration of the timetable; previously it had only committed to publish a draft Bill, but not to pass legislation. Whilst the exact timing was unclear at the time of writing, there are reports that the Government is aiming to have the legislation on the statute book and in force by October 2023; if correct, this would mean that a Bill would need to be put before Parliament in the near future.
"This legislation has been in the pipeline for a while but it is significant - and somewhat unexpected, given the wider political and economic climate - that the Government has chosen to expedite it. The timeline for implementation remains to be seen but we expect businesses that are affected will want to start to consider the implications very carefully, particularly given the significant ramp-up in enforcement powers for the CMA for these types of breaches."
Ben Chivers, Partner, Commercial, IP and Technology
How will these measures improve growth?
The CMA estimates that its existing work in enforcing competition and consumer protection law produces savings for consumers of £2 billion a year. In simple terms, it would argue that it achieves this by ensuring that businesses focus on competing with one another (rather than, for example, cooperating to fix prices and share markets) and that when they sell directly to consumers, they "play by a common set of rules" designed to ensure fairness on issues such as price comparisons and so on.
By giving the CMA additional powers and tightening up the law in a number of areas, the Government hopes that the Digital Markets, Competition and Consumer Bill will further intensify this focus on a highly competitive business environment, resulting in a more efficient economy, more conducive to improving growth. It would also argue that any costs for individual businesses arising from additional compliance measures are more than outweighed by these "whole economy" benefits.
How quickly can we expect to see an impact?
The experience of GDPR in relation to data protection suggests that the introduction of a tougher regulatory regime can sometimes have an impact fairly quickly, as businesses change their behaviour to mitigate the risks of sanctions such as fines. However, for this to work, awareness of the reforms needs to be high. In that respect, it is perhaps surprising that the Government is not putting more emphasis on reforms such as the new powers for the CMA to impose fines for breaches of consumer protection law, which will significantly strengthen the CMA's hand in terms of enforcement. This may be because it has concerns that they will be perceived in some quarters as an increase in “red tape” - even though, as pointed out above, there are good arguments that, applied sensibly, they will sharpen competition and reduce inefficient expenditure by consumers on poor value products and services.
The longer term perspective
Where the initial introduction of tougher regulation has a more limited impact, much depends on the success of the regulator in taking on high profile cases that "send a message". Inevitably, it takes time to build up a reasonable number of precedents, as is apparent from experience of the Competition Act, which came into force in 2000. 20 years on there is now a reasonable body of precedents and evidence of a significant deterrent effect from such work. Yet despite that, recent CMA studies indicate that there remains room for improvement in business awareness of competition law. This suggests that the positive impact of reforms such as those proposed in the Digital Markets, Competition and Consumer Bill will probably need to be assessed against a longer timescale.
What else does Government need to do?
Regulators cannot be expected to achieve the desired deterrent effect from regulation of this type unless they are adequately resourced to take enforcement action based on any new powers. A key area to watch will be how far the CMA is expected to share the pain of projected cuts to public expenditure. It has already had to take on additional staff to cope with extra burdens from Brexit, notably in relation to merger control and most recently, state aid/subsidy control – although on the positive side, the Digital Markets Unit, which will be central to the CMA's new powers to intervene in the tech sector, has already been set up.
The bigger picture
Looking at the bigger picture, the Government's better regulation principles – which we commented on here - contain some recognition of the positive role that well-designed regulation can play in promoting economic growth. Whilst this is welcome, it could be brought out more strongly; doing so would help Government to defend those principles against the criticism that their current emphasis on cutting red tape and divergence from EU and other international "norms" reflects an approach which fails to distinguish adequately between growth-promoting and growth-inhibiting regulation.
Spotlight on Better Regulation series
This is the third in a series of briefings on regulatory reform and better regulation across a range of different sectors, entitled Spotlight on Better Regulation. So far, we have discussed the Government's better regulation principles and its approach to environmental, energy and infrastructure regulation against the background of its plans to stimulate growth in the economy.
You can also use our Regulatory Reform portal to check for the latest updates on changes to regulation across all areas on which we advise.