The Cabinet Office today announced its long-awaited proposals for public bodies reform. The package provides for the abolition of 192 bodies, with 118 being merged and some still under consideration. The reforms are part of the Government’s overall initiative to ensure greater accountability, transparency and efficiency by reducing the number and cost of public bodies, and of bureaucracy as a whole.

Over the next few weeks, we expect publication of the “Growth White Paper”, with further detail on plans to reform the competition regime, sectoral regulation and consumer protection. This will be followed-up in the New Year with a public consultation on the detailed proposals. Reform is not therefore imminent.

One of the most significant changes announced today is the proposed merger of the Office of Fair Trading (OFT) and the Competition Commission (CC). The new competition and markets authority would be responsible for merger regulation, market investigations, cartel and other antitrust cases, together with a number of functions with respect to the regulated utilities.

The Secretary of State for Business, Innovation and Skills, Vince Cable, has also suggested that responsibility for national-level enforcement of consumer protection (as opposed to competition) law would be devolved to the 200+ Trading Standards Services around the UK, and that the OFT's own consumer information functions, and those of Consumer Focus (which the Government is also considering abolishing), will be reallocated to Citizens Advice and others.

The new UK competition regime: strengthened and streamlined?

The Department for Business, Innovation and Skills (BIS) claims that the merger will “strengthen the competition regime, streamlining procedures, making it less burdensome and delivering cost savings”. However, before we see the detailed proposals in the New Year, the reform clearly raises some important questions and challenges.

Potential Benefits – significant efficiency gains?

  • At present, the power to review mergers in Phase 1 and 2, and to carry out market studies and investigations is split between the OFT and the CC, which often leads to delays and duplication of efforts.
  • The creation of a single authority could enable a better use of resources with greater flexibility to manage peaks and troughs across the OFT and CC’s different areas of work, with improved opportunities to develop and retain expertise within the authority. It could also eliminate duplication in staffing and governance, create efficiencies of scale and deliver better, more consistent and quicker outcomes for consumers, lower burdens and greater predictability for business and less costs to the taxpayer.
  • The reform is likely to reduce the high burden (cost and time-wise) on companies involved in complex (Phase 2) UK merger reviews, as well as market investigations. Partly due to a duplication of work between the OFT and the CC, market investigations alone (including an OFT preliminary study) can take far longer than the 2 years contemplated by the statute. Today, Vince Cable recognised the burdens on business that this regime has produced.
  • One further possible benefit of reform is that it could lead to a greater separation of regulation and competition powers. This will be welcomed by those who take the view that regulators should regulate and competition authorities should enforce competition law.
  • Similarly, the proposed separation of competition and consumer powers will be welcomed by some businesses who have been investigated by the OFT (sometimes simultaneously) under both regimes. Currently, it is often unpredictable for companies whether the OFT will use its competition or consumer law based powers in any given scenario.

Potential challenges and open questions

Despite the potential benefits set out above, there remain a number of important unanswered questions:

  • One of the key issues is how the new authority will be staffed. Who will appoint or elect its members, and to whom will they be accountable?
  • One common criticism of a unitary authority is the lack of a “fresh pair of eyes” during the process, and the difficulties faced by parties trying to advocate their position to alternative, impartial decision-makers. This raises the issue as to whether there should be an EU Commission / US FTC style move towards a college of full time Commissioners / executive directors, or whether the CC's current part-time panel of experts should be retained.
  • If the new authority were to retain all of the OFT and CC’s current enforcement powers, independent decision-making and appropriate checks and balances within the system would need to be enhanced. This includes the need for an adequately robust appeals process:
    • Given the CC’s current unique powers in relation to market investigations, should the single authority be able to decide to initiate a Phase 2-style investigation and impose structural remedies? Similar issues arise in relation to mergers.
    • If the single authority had such powers, would appeals continue to be confined to a judicial review as under the current regime, or would they extend to the merits of a case?
    • And who would in future be in charge of dealing with appeals from the sectoral regulators on pricing and other issues (currently a CC competence)?

Consumer law impacts of the changes

  • Many will argue that the benefits of the OFT’s current integrated approach to competition and consumer protection issues need to be retained.
  • If the OFT were to lose its consumer protection powers to Citizens Advice and Trading Standards (as suggested), could this result in an unduly fragmented local approach and, if so, should some centralised function be maintained?
  • Some may argue that a consumer agency would be more interventionist because the overriding “free markets” approach of competition enforcement could act as a break on hasty intervention. The challenges for enforcement of consumer law by a separate agency were recognised in the OFT’s response to today’s announcement.
  • The proposed changes are likely to have a significant impact on the enforcement of UK consumer law, an area which is already changing fast. We will be reporting separately on the UK’s new consumer law landscape in the coming months.