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UK CMA publishes response to Government’s proposed reforms to competition and consumer policy

  • United Kingdom
  • Commercial and IT
  • Competition, EU and Trade

07-10-2021

 

On 4 October 2021, the Competition and Markets Authority (“CMA”) published its response[1] to the UK Government’s consultation on proposed reforms to competition and consumer policy.  The Government consultation takes forward many (but not all) reform proposals made by Lord Tyrie (then Chairman of the CMA) in a letter to the Secretary of State for Business, Energy and Industrial Strategy in 2019. The CMA has described the consultation as perhaps the most important review of competition and consumer policy in a decade

The CMA’s response to the consultation shows that, broadly speaking, the CMA welcomes the proposed reforms, which include: bolstering the CMA’s powers; changes to the merger control notification/investigation process; enhancement of consumer rights; and ensuring that breaches of competition and consumer law are robustly enforced. 

A summary of the CMA’s responses to the key proposals in respect of competition and consumer policy are set out below.

Competition policy

1. Merger control

Jurisdiction

The Government has proposed to raise the current turnover based threshold for the target of a merger from £70m - £100, and to create a safe harbour for mergers between small business where the worldwide turnover of each of the merging parties is less than £10m.  The CMA is supportive of this, noting that it is supportive of any changes to merger review which reduce the potential burden of merger controls on the businesses involved, particularly small businesses, whilst still protecting the welfare of UK consumers.

The CMA is also considering an additional test for determining whether the CMA has jurisdiction to review a merger. In particular, the Government is considering empowering the CMA to review a merger if any party to the merger has both: a share of supply of at least 25% of a particular category of goods or services supplied or acquired in the UK or a substantial part of the UK; and a UK turnover of more than £100 million. The CMA is strongly supportive of this new jurisdictional test, commenting that it would protect UK consumers against mergers that might otherwise fall outside of the merger regime.

Safe Harbours

The Government is considering introducing a “safe harbour” where the CMA would not have jurisdiction over a merger if the worldwide turnover of each of the merging entities is less than £10 million.  The CMA has expressed concerns that this would limit the CMA’s ability to intervene in smaller mergers that could have a significant impact at local level or on vulnerable communities. If this is to be introduced, the CMA suggests the threshold is set at a lower level, to apply where the merger parties’ combined UK turnover does not exceed £10 million.

Commitments

The CMA supports the Government’s proposal to allow parties to offer commitments earlier in phase 2 investigations (to enable the CMA to clear a merger quicker), but has suggested that if a party has proposed commitments the party should be bound by the outcome of the case where the CMA accepts those commitments, giving up the right to appeal that decision.

Fast track

The CMA strongly supports amendments to facilitate the use of the ‘fast track’ Phase 1 merger procedure but has suggested that, in order to ensure that the fast track procedure results in an efficient process, merging parties should be required to submit any such request prior to, or at the time of, submitting their final merger notice, which would allow the CMA to move to the fast track procedure rather than initiating its normal Phase 1 review.

2. Stronger and faster enforcement

The CMA is supportive of the option to lower the “immunity threshold” for agreements of minor significance, to £10m.  The Government asked a question as to whether the £10m threshold should apply individually to each company, or to the combined turnover, and the CMA has suggested that if the threshold is applied individually then market sharing agreements should be excluded from the immunity (as well as price fixing which is already excluded).

The Government is concerned companies considering making leniency applications to the CMA (ie. where parties approach the CMA with an admission of guilt and evidence in respect of a competition law infringement, in exchange for a reduction in penalties) are currently disincentivised from doing so because of the risk of subsequently being sued for damages by parties affected by the infringement.  One proposal to address this concern is to provider holders of full immunity with additional immunity from liability for damages in the UK.  The CMA recognises this could be helpful in respect of cartels with a UK focus, but responded that it will be important to limit the protection to parties with a full immunity agreement and which continue to abide by that agreement.

The Government made a number of other recommendations in this area which were not addressed by the CMA in its responses.  One such example is the Government’s proposal to extend the CMA’s jurisdiction to investigate abuses of a dominant position where that position is held outside of the UK.  That particular proposal would extend the UK’s jurisdiction much farther than the equivalent EU position, which is that the dominance must be in the internal market or a substantial part of it.  

3. CMA Panel

The CMA has an independent panel of 33 members appointed through open competition based on their experience, ability and skills.  Most panel members are part time and serve as decision makers on investigations.  A smaller group of panel members, who dedicate more time to the position, are appointed to chair inquiry groups.  The  Government has proposed changing this to a smaller pool of dedicated panel members for whom panel work is their primary employment.  The panel would make final decisions on theories of harm and remedies.

The CMA is concerned the Government’s proposals risk losing the benefits of the existing system (which results in a diverse and highly skilled pool), including by making the role less attractive to academics or people with more of a business background.  The CMA is also concerned a smaller panel group could cause delay as a result of diary clashes.  However, the CMA is supportive of having a core of panellists whose work for the CMA is their primary employment and suggests a hybrid Panel with some part time and some full time.

4. State of Competition Reports

The CMA produces annual “State of Competition” reports for the Government and the consultation had a number of questions on this area.

In response to a Government question on what metrics/indicators could be used to better understand and monitor the state of competition in the UK, the CMA acknowledged that: official statistics are only available with significant lags; and the statistical classifications were developed when manufacturing was the dominant part of the economy, meaning that there are challenges in the way that services are classified.  The CMA noted that some of the metrics and indicators that will form the basis of future CMA reports include concentration, indicators of dynamic competition, profitability and mark-ups, and customer surveys.

The Government had also asked if the CMA should have the power to obtain evidence specifically for the state of competition reports, and the CMA’s response indicates that these could be helpful in order to enable it to draw on a wider range of evidence and make better informed findings.

5. “Strategic Steers” from the Government to the CMA

The CMA supports the government’s wish to provide more detailed and regular strategic steers, but cautioned that they should not be given more frequently than once every two to three years, to avoid the risk that the steer becomes, or is seen to become, more operational than strategic.

6. Market Studies and Investigations

The Government has expressed an aim to increase the pace of markets work and put forward a number of structural reforms in order to achieve that aim, including merging the “market study” and “market investigation” tools into one single stage market inquiry.  In its response, the CMA considers that the current structure of the markets regime should be  maintained on the basis that it strikes an appropriate balance between speed and procedural safeguards, whilst acknowledging that some of the CMA’s reforms would assist in streamlining the processes (for example, the CMA seeking, where appropriate, to move straight to a market investigation rather than undertaking an unnecessary market study first).  The CMA also supports the proposal that it should be able to impose interim measures from the beginning of its market work, meaning action can be taken more efficiently.

Consumer rights

7. Subscription traps

The Government has consulted on tackling ‘subscription traps’ by strengthening and clarifying the law on pre-contract information requirements, providing consumers with a choice on auto-renewal, increasing the obligations on traders to remind consumers of ongoing subscriptions and making it easier for consumers to exit subscriptions.

The CMA fully supports the proposals to tackle this issue, noting in particular the focus on the explicit upfront consent as the most important proposed change to clarify the existing rules. The CMA also agrees it is important that consumers are given transparent and timely pre-contract information and is of the opinion that the proposals add crucial levels of detail to the provisions which already exist in UK consumer law.

8. Preventing online exploitation of consumers

The Government has also consulted on potential ways of seeking to prevent online exploitation of consumers by strengthening the law to better prevent the posting of fake reviews online and promoting ‘fairness by design’ principles in how transactions are presented.

The CMA’s response acknowledges the growth of the e-commerce market and suggests that online platforms need to have explicit, legal duties in respect of consumer law. The response discussed the CMA’s significant focus on protecting consumers from fake reviews to date and notes that the CMA supports a ban on commissioning or incentivising fake reviews.

The CMA also suggest that an ability to add rapidly to the existing list of banned practices contained in The Consumer Protection from Unfair Trading Regulations 2008 would be beneficial to consumers.

9. Improving prepayment protections

As part of the recent consultation, the Government has also proposed measures to improve prepayment protections by amending the law to require consumer prepayment schemes, such as Christmas savings clubs, to safeguard customers’ money appropriately.

The CMA supports the proposals to amend the Consumer Rights Act 2015 such that a flexible power can be introduced allowing for the protection of product (or market) prepayments through the means of insurance, bond or trust accounts. Such a power should also be flexible enough to deal with problems that arise from short term ‘buy now pay later’ schemes that fall beyond the scope of regulated agreements and financial regulators.

Comment

The CMA has shown that it is fully supportive of significant changes to competition and consumer policy and is fully engaged in the reform process. The proposed reforms have the power to fundamentally alter the enforcement regime in the UK and businesses will need to ensure that they keep abreast of the changing landscape and understand how the proposed reforms may impact them moving forward. 

[1] Eversheds Sutherland has submitted its own responses which will likely be published on the CMA’s website in due course.


For further information on the implications for you and your business please contact:

Competition - Ros Kellaway and Elizabeth Coleman
Consumer - Matthew Gough and Kerry Boxall