Reforming competition policy: ready for lift-off

Introduction

Since the publication of Lord Tyrie’s letter of 2019, change has been underway in developing and reforming competition and consumer policy in the UK. Bird & Bird previously reported on the proposed reforms which were announced in July last year. In April 2022, the government finally published its response to its consultation on those proposals. The consultation received over 180 responses and was focused on three themes:

• promoting competition to drive enterprise, innovation, growth, and productivity;
• updating consumer rights to keep pace with markets; and
• strengthening the enforcement of consumer law by individuals and regulators.

This article briefly summarises the key competition policy reform proposals which the government has confirmed it intends to move forward with, following the Queen’s speech on 10 May 2022. The proposed legislation will be known as the Draft Digital Markets, Competition and Consumer Bill. If you would like to learn more about the consumer law reforms, please see our related update here.

Competition Policy

A more active pro-competition policy and potentially more government intervention

The government is keen to empower the Competition and Markets Authority (“CMA”) by giving it greater influence on government policy, whilst giving the government the opportunity to provide strategic steers. These strategic steers, which will, importantly, be non-binding, give the government an opportunity to get issues onto the agenda for the CMA to enforce. The CMA will have more influence in its role as an economic adviser to government, via regular ‘State of Competition’ reports which assess the strength of competition in the UK economy.

Market inquiry regime

The government would like to give the CMA greater flexibility in their market inquiries. It intends to allow more opportunity for binding commitments to be accepted at any stage during market studies and market investigations; provide the CMA with greater flexibility to define the scope of market investigations; and to remove the requirement to consult on a market investigation reference without first conducting a market study if the CMA has reasonable grounds to suspect adverse effects on competition in a market.

It wants to encourage the CMA to be flexible with its investigation tools and use them as efficiently and effectively as possible to gain the maximum benefit for consumers. In terms of remedies, the CMA will be able to require businesses to conduct trials to determine the final format of certain remedies and be able to amend remedies in a 10-year period following its finding of an ‘adverse effect of competition’.

Merger control: big changes to come

The current voluntary regime will remain in place and the turnover threshold will be increased in line with inflation from >£70m to >£100m UK turnover. The share of supply jurisdictional test remains unchanged. The government wants to create an additional basis for establishing jurisdiction to enable review of so-called ‘killer acquisitions’ and other mergers which do not involve direct competitors. Jurisdiction would be established where at least one of the merging businesses has: (a) an existing share of supply of goods or services of 33% in the UK or a substantial part of the UK; and (b) an annual UK turnover of £350m. Though only mergers with an appropriate link to the UK will be captured. There will also be a new small merger safe harbour, exempting mergers from review where each party’s UK turnover is less than £10 million.

There is a drive for the CMA to conduct merger investigations efficiently. The proposals directed at this aim include giving the CMA power to accept commitments from businesses which resolve competition issues earlier during a phase 2 investigation, enhancing and streamlining the merger ‘fast track’ procedure and updating how the CMA is required to publish its merger notice.

Enforcement: more powers for the CMA and closing the ‘gaps’

A key priority is stronger enforcement to be able to protect consumers. A range of proposals are being taken forward on this topic, including:

• broadening the scope of the Chapter I prohibition to capture agreements implemented outside the UK, where it affects conduct in the UK;
• granting the CMA wider evidence gathering powers, including the ability to interview any relevant person to an investigation, a duty to preserve evidence in all Competition Act investigations, creating ‘seize and sift’ powers for inspections of domestic premises, and, crucially, being able to obtain information stored remotely by warrant;
• new frameworks relating to confidentiality rings;
• reducing the turnover threshold for immunity from financial penalties under the Competition Act for breaches of the Chapter II prohibition from £50m to £20m, meaning it’s easier for the CMA to investigate abuse of dominance by smaller businesses;
• expanding the jurisdiction of the Competition Appeal Tribunal (CAT) to include the ability to grant declaratory relief and returning to the CAT the discretion to award exemplary damages for breaches of competition law;
• a new “statutory duty of expedition” for both the CMA’s competition and consumer law functions;
• higher standard of review for CMA interim measures decisions issued in respect of Competition Act investigations; and
• Introducing civil penalties of up to 5% of a business’s annual worldwide turnover for breaching commitments or undertakings, directions, orders or interim measures, plus a daily penalty of up to 5% if non-compliance continues.

Wider reforms and international cooperation

The CMA will also be granted wider powers to enhance its enforcement capabilities. It will be able to impose additional fines on business of between 1% - 5% of annual global turnover where a business fails to comply with an investigative measure or information request. Not least, where an individual conceals, falsifies or destroys evidence, the CMA could impose fixed penalties of up to £30,000, as well as have the power to impose an additional daily penalty of up to £15,000 while non-compliance continues.

Finally, there will be more effective and flexible international cooperation by updating the rules governing information sharing between authorities, and by enabling the UK’s competition authorities to use compulsory information gathering powers to obtain information on behalf of overseas authorities.

Timing and consequences

Parliament will now vote on the Queen’s speech. Once approved in the Commons, the government will, over the course of the next year, put the Draft Digital Markets, Competition and Consumer Bill before Parliament when parliamentary time and priorities allow.

This is a major set of reforms which will bolster and upgrade the CMA’s competition enforcement powers. Not all the proposals were adopted, such as leniency applicants having immunity from private damages actions, but the package of measures should certainly have an impact. Businesses should therefore take note and review their competition compliance policies so that they’re ‘match fit’ for when the reforms become law. Together, with the consumer law powers and the announcement that measures will also be published to create new competition rules for digital markets and the largest digital firms (meaning the SMS regime and DMU is not dead in the water) this is, frankly, a water-shed moment for the UK’s competition and consumer law regime.

One of the most interesting changes will be the government’s ability to give ‘strategic steers’. The CMA has always been very careful to protect its independence, so this development is unlikely to have been welcomed with open arms, particularly, if it results in a new art of lobbying government to put pressure on the CMA.

Authored by: Saskia King, Chloe Birkett

For more information please contact Saskia.king@twobirds.com