UK society and its economy faced three serious challenges as the 2020s developed: Climate Change, Brexit and the COVID-19 virus. This web page describes how competition policy developed in response. to those challenges, and in other ways.
COVID-19
The CMA responded quickly to the issues raised by the arrival of COVID-19, threatening action in response to price gouging, and announcing that no enforcement action would be taken against businesses cooperating so as to reduce damage to consumers and others. (In the case of price gouging, a Georgia (USA) man who bought 200,000 face masks for $2.50 and sold them for $5.00 was charged with committing an offence but this could not then happen not in the UK as such profit incentives were expected to rapidly increase supply of a most needed product.) Further detail is in a note by Tasneem Azad.
But the CMA's bid for 'temporary new laws' met a cool reception in Whitehall.
The CMA also - very unusually - allowed an otherwise anti-competitive merger to take place on the grounds that one of the companies would fail in the absence of a cash injection, and no other source of funds, nor any other likely purchaser, was available. The acquiring company was Amazon. The target was Deliveroo. And the special circumstances were (of course) the COVID-19 pandemic and associated recession.
(Deliveroo's argument is known as the failing firm defence - or - as cynical competition experts call it - the flailing firm defence. Competition authorities generally conclude that someone will acquire a flailing company, and so maintain competition, if the price is low enough.)
Resignation of Andrew Tyrie
The CMA's Chair, Lord Tyrie, announced his resignation in June 2020, after only around two years in the job. He made it clear that he was frustrated by the legal limits on the CMA's powers and by the Government's (so far) unenthusiastic response to his request that he be given new powers. These issues are discussed in my webpage summarising developments at the CMA and elsewhere before 2020.
In short, though, he had bid for powers to intervene decisively on behalf of the consumer - but without first carrying out a detailed investigation - which one commentator described as 'untrammeled'. At a deeper level, he wanted the CMA to work to an overriding consumer interest duty rather than its then current duty to promote competition for the benefit of consumers. As explained here, this would have been a much more far-reaching change that it first appears so it was not surprising that he hit obstacles which he found frustrating.
He had, however, suggested some interesting ways in which the CMA might more effectively regulate the digital economy and it will not be surprising if these are taken forward by the Government.
The resignation of a Chair of such a prominent and important regulator was undoubtedly unusual and striking, and became all the more so when it transpired that he had in fact been forced out by 'a rebellion' by the CMA's senior executives - presumably supported by the non-execs on the CMA's Board. The 'rebellion' included an approach to the Business Department who must have sided with the execs. There had clearly been a pretty serious personality clash between the serious-minded and 'political' Chairman and the equally serious-minded economist Chief Exec. Different characters might have found some room for compromise.
[Tyrie letter?]
Amusingly and annoyingly (to those of us who had opposed the merger of the Competition Commission and the Office of Fair Trading to form the CMA) Lord Tyrie's letter was followed by press comment along the lines that the CMA should be broken up into its competition and consumer protection sides.
The Penrose Review
The Treasury announced on 14 September 2020 that John Penrose MP had been asked to examine UK competition policy with a view to 'cement[ing] the UK’s position as a leader in this field'. The review would 'consider ways our regime could evolve in the context of Covid-19 and the end of the [Brexit] transition period'.
It looked very likely that the conclusions of the review had already been decided as:
- the report was to be published before the end of the year,
- it was commissioned by the Treasury, not the Business Department,
- John Penrose had no obvious qualifications or experience, but
- he was married to Dido Harding, a close confidant of the Prime Minister and Dominic Cummings.
Three months before the end of the Brexit transition period was, of course, far too late to begin such an important review.
The Penrose Report itself (Power to the People) was long, wide-ranging and detailed but caused no immediate excitement or impact. It described how competition and consumer protection policies were struggling to cope with Big Tech and how everyone wanted 'faster and more predictable competition decisions' but failed to find any solutions which commanded wide agreement. It contained lots of interesting ideas, such as County Competition Courts but had been written far too quickly to be able to address the obstacles to the success of such innovations. And it was published well before the end of the Covid pandemic and well before the economic consequences of Brexit had become clear, and so could not claim to have addressed the principal concerns that had supposedly led to its requisition.
Here are its key recommendations:
- That the UK competition authority, the Competition and Markets Authority (CMA) “should become a micro-economic sibling for the Bank of England’s well-established public macro-economic role, responsible for tracking progress of UK competition, consumer rights, supply-side reforms and productivity improvements”;
- That the CMA should publish an annual ‘State of Competition and Consumer Detriment’ report that looks to identifying progress and problems across all sectors;
- That the CMA’s consumer powers ought to be strengthened and brought in line with its competition toolkit;
- That “the Government must establish a taskforce to complete an end-to-end review and redesign of procedures and case management in CMA and CAT”;
- That the government should look to cut red tape costs with a revived Better Regulation regime;
- That the CMA’s new digital market unit be “called the Network & Data Monopolies Unit (NDMU) and it’s extra-strong upfront powers must:
- Be a ring-fenced addition to the rest of CMA’s existing competition and consumer powers, so it can use the normal ones wherever possible.
- Only apply to individual firms that own and run new network and data monopolies, rather than to the rest of the sector in which they work.
- Only apply to problems which CMA’s existing competition and consumer powers can’t solve already.
- Only be extended with Parliament’s consent.”;
- That an audit be undertaken of all the sector regulators’ legal duties so that they all have a “strong, clear ‘competition for the benefit of consumers first, regulation only as a last resort’ primary legal duty”;
- That “we should independently-auction the contracts to build and upgrade the network monopoly infrastructure in each regulated industry, rather than handing them to the incumbent monopoly-owners instead”;
- That “We should create new, cheap, efficient, fast-track County Competition Courts for local and regional cases (the tier below existing CAT fast-track cases) with very tight case management”;
- That the “CMA should update its guidelines on what treating customers fairly means in practice, including ‘transactional fairness’ in its work, so it is as easy as possible for businesses, charities and public bodies to identify and avoid problems in advance, and so the guidelines keep up with changing attitudes of what society views as ‘fair’ in future too.”; and
- That “Ministers should develop new options on how to prevent fast-growing UK-based firms in fast-growing sectors (in other words, successful firms in the industries of the future) from being poached offshore for non-commercial reasons, without damaging our attractiveness for FDI by creating disproportionate political risks at the same time.”
The CMA: a reboot for the 2020s
Andrew Tyrie returned to the charge in the above titled report published in 2021 by the Centre for Policy Studies, the Policy Institute and Kings College London.
Here is the accompanying press release:
Two thirds of businesses do not know that the Competition and Markets Authority (CMA) enforces competition law in the UK; two fifths have never heard of it, and one in ten discuss prices with their competitors because they do not know the practice is illegal.
In a new report with the Policy Institute at King’s College London and Centre for Policy Studies think tank, Andrew Tyrie expresses his concern that the CMA’s effectiveness will be eroded without urgent reform. Its relative invisibility currently undermines the CMA’s capacity to deter uncompetitive and unfair trading. Consumers, and the economy as a whole, are both paying the price.
In the report, Tyrie, who chaired the watchdog from 2018 to 2020, makes many recommendations for reform of the competition watchdog, which can be taken forward without further legislation.
Among his suggestions for immediate reform are greater openness to consumer complaints, through the introduction of a simple online form to alert the CMA to rip-offs in products and services; the publication of regular progress reports on its work and the state of UK markets; and far more comprehensive collection and analysis of data on the health of competition in the economy – something on which, so far, the CMA has done insufficient work.
Tyrie also reveals that decisions on which cases to investigate have been delegated to a small group of senior executives, rather than being taken directly by the CMA’s Board, as originally envisaged by Parliament in legislation. He says this practice – which has meant the CMA has taken a number of cases that have little strategic justification or connection to the lives of ordinary consumers – must end. Better, and better explained, decisions can and should result.
The CMA will need to improve its capacity to serve as a repository of expertise on the micro-economy, and also to take a much more active role in offering constructive advice to the Government, devoting more of its staff time to both tasks.
Arguing that the Chairman and the Chief Executive should be much more visibly and directly accountable (the former answerable for the choice on which cases to initiate; the latter for the subsequent decisions) he says both should engage much more vigorously than at present with Parliament, the media and the wider public.
Major legislative reforms are also needed. Tyrie set out what may be required publicly, over two years ago. He warns that competition and consumer protection policy is currently struggling to keep pace with the growing power of online platforms, and the scope for the growth in consumer detriment in much of the economy that they make possible. The Government is likely to consult shortly on legislative change. It grasps the problem; the challenge will be to legislate quickly to address it.
Taken together, these reforms could and should greatly improve the accountability, transparency and effectiveness of the CMA, hugely benefiting UK consumers, and the economy as a whole.
Releasing the report, Lord Tyrie said: “The fact that so many businesses either haven’t heard of the CMA, or don’t understand what it does, is a very concerning state of affairs and cannot be allowed to persist. It urgently needs a stronger public voice, as without it, the CMA’s ability to deter anti-competitive behaviour will be sharply reduced. Again, it is the consumer – millions of us – who lose out.
“By releasing the considerable abilities and energies of its staff with major legislative, cultural and institutional reforms, and with new priorities for its work signalled by Government and Parliament, much consumer detriment can be tackled and public trust restored and a more efficient and competitive economy will be able to develop. What’s needed has been pretty clear for a long time. With swift implementation, these reforms can transform the CMA and enable it to serve as a beacon for other parts of the regulated sector. With the Government’s forthcoming consultation pointing the way, there is now a great opportunity to tackle many of the intractable weaknesses of the current legislative and regulatory framework.”
The CMA and Big Tech
The CMA started hitting the headlines when it:
- blocked the Meta (Facebook)/Giphy merger and then fined fined Facebook £50 million for failing to allow Giphy to operate as a separate business pending a decision whether to allow the (already completed) merger,
- allowed the merger Microsoft/Activision merger only after forcing Activision to sell its cloud gaming rights to Ubisoft, and
- faced more general criticism that it was taking too aggressive an approach to possibly problematic mergers, and was over-critical of behavioural remedies.
Critics declared that the CMA was stifling innovation but much of the noise was generated by companies whose genuinely anti-competitive mergers had been thwarted. American executives, in particular, are well used to dealing with their own and the EU's competition authorities, but tend to be surprised and annoyed by the CMA's powers and its willingness to take an independent line.
Microsoft's President, Brad Smith, declared that the UK was "bad for business" and that people's confidence in the UK had been "severely shaken" when the CMA blocked their acquisition of Activision - but later applauded the final settlement (including the divestment of their cloud gaming rights) as "tough but fair".