Today, Conservative MP John Penrose published his independent report into how the UK can enhance its competition regime now that the Brexit transition period has ended. The report also considers how competition policy can support the economic recovery from COVID-19.
The report, entitled “Power to the People”, covers a broad range of issues. In the long term, Penrose calls for a new Competition Act that is updated to reflect the new “digital” economy. In the short run, Penrose identifies a number of impactful proposals within his report that he considers can be accomplished without legislation.
All power to the CMA?
Penrose argues that there is currently a gap in the UK’s competition regime where there is “no strong, independent institution responsible for the overall progress of competition, consumer rights, supply-side reforms and productivity improvements”. The report proposes that the Competition and Markets Authority (CMA) should seek to fulfil this role and become the “micro-economic sibling” of the Bank of England.
Amongst other things, Penrose calls for the CMA to:
- receive updated civil consumer enforcement powers to be able to decide consumer law cases and impose fines in the same way that it does for competition law;
- receive strengthened powers to impose penalties for non-compliance with its investigations;
- be able to accept legally-binding undertakings at any stage in a market study, market investigation, or Phase One or Two merger review from relevant parties;
- publish an annual “State of Competition and Consumer Detriment” report which measures and analyses progress and problems in all sectors of the economy, and all parts of the country; and
- publish the conclusions of its regular monthly intelligence-gathering meetings with consumer complaints organisations (subject to confidentiality considerations e.g. in relation to live cases).
The report also calls for a government taskforce to be established to complete an “end-to-end review” of how the CMA and Competition Appeal Tribunal’s processes interact. This follows from what Penrose considers to be “plenty of agreement” that the overall process from investigation to appeal is “cumbersome and clunky”.
Preventing “regulatory creep” in digital markets
Penrose supports the Government’s announced intention to establish a new digital markets unit (DMU) within the CMA, which will focus on tackling digital firms with substantial, entrenched market power. However, the report cautions that giving this unit strong upfront powers, which may be quicker and easier than normal competition and consumer laws, is a “headily-addictive drug for regulators”. As a result, Penrose proposes that the DMU should:
- only apply to individual firms that own and run new network and data monopolies (and so should be called the “Network & Data Monopolies Unit”), rather than apply to the digital sector as a whole;
- be a ring-fenced addition to the CMA’s existing powers, so that the unit “doesn’t hollow out CMA”;
- only apply its sectoral powers to problems that the CMA’s existing powers can’t solve already; and
- only have its powers extended to apply to new network or data monopolies following a market study, and with Parliament’s consent.
Ensuring a “Brexit Dividend” in regulated industries
The report suggests that sector regulators should share the same mandate as the DMU to erode the power and strength of natural monopolies “by making pro-competitive interventions, for example by encouraging more data sharing, or reducing barriers to new entrants”.
A particular area of focus is creating a “Brexit Dividend” by replacing EU regulations with ones “cutting red tape costs” and prioritising consumers first. Penrose recommends that:
- each sector regulator should be subject to a “Brexit Dividend” better regulation target;
- each economic regulator should publish and execute a multi-year project plan to make their sector into a “normal” pro-consumer, high-standards competitive market;
- sector regulators’ legal duties should be changed so that they have a strong “competition for the benefit of consumers first, regulation only as a last resort” primary legal duty; and
- contracts to build and upgrade the network monopoly infrastructure in all regulated industries should be independently auctioned rather than given to incumbents as a starting point.
The end goal of these reforms would be for sectoral regulators, such as Ofcom, Ofgem and Ofwat, to have much smaller economic regulation teams that handle price controls as a result of increased “normal” competition in these markets.
Self-restraint on subsidies, but some FDI controls
Finally, Penrose suggests that although the UK, having left the EU, now has “full sovereign control” to decide to subsidise particular industries, it should in general choose not to do so, in order to keep the economy competitive and avoid distortions of competition. However, with perhaps Nvidia’s proposed acquisition of Arm in mind, the report does suggest that “Ministers should develop new options on how to prevent fast-growing UK-based firms in fast-growing sectors… from being poached offshore for non-commercial reasons”.
This suggests that there may continue to be a focus on screening foreign investment post-Brexit, even beyond the Government’s National Security and Investment Bill that is currently making its way through Parliament.
As an independent report, Penrose’s conclusions are not binding on the UK government (which is expected to respond in due course). However, many of the points that the report raises are consistent with the findings of other reports and reviews including the letter in February 2019 from the then CMA Chairman, Lord Tyrie, to the Secretary of State for BEIS. Competition law reform of some sort therefore seems likely to be high on the agenda for 2021.
Isabel Taylor and Robert Walmsley
We must strengthen competition in our economy as we build back stronger from COVID-19 and protecting consumers will remain at the heart of this important work – Chancellor Rishi Sunak