The Competition and Markets Authority: a powerful body faces an uncertain future

Brexit presents many questions for a regulator at a crossroads

November 04, 2020
Photo: Alamy
Photo: Alamy

One of the aspects of the controversial Internal Market Bill that has attracted little attention is its creation of another role for the Competition and Markets Authority (CMA), namely that of monitoring market access and regulatory provisions between different parts of the UK. Depending on the outcome of negotiations with the EU and the current government’s decision on a future state aid regime, the bill—by making subsidy control a UK rather than a devolved power—also potentially opens up another role for the CMA, as an independent regulator of subsidies throughout the UK. So what is this body to which so much power is potentially being given?

The CMA is the successor of bodies that have been around since the 1950s, but which from the 1970s were known as the Office of Fair Trading (OFT) and the Monopolies and Mergers Commission (and later the Competition Commission, or CC). The OFT’s role was transformed by two pieces of legislation introduced by the Blair government. The Competition Act 1998 swept away much of the previous ramshackle domestic regime and replaced it with legal prohibitions on anti-competitive agreements and abuses of monopoly power. Those provisions were based on EU competition law, which applied to agreements and abuses affecting trade between member states, and gave the OFT power for the first time to impose huge fines and order practices to stop, subject to an appeal to a new Competition Appeal Tribunal (CAT).

A few years later, the Enterprise Act 2002 generally removed politicians from other aspects of the UK competition regime (ie merger control, except in cases involving media plurality and national security, and a system for review of anti-competitive market structures and practices known as the “market investigations” regime)—where the secretary of state for trade and industry had been the final decision-maker—and gave his final decision-making powers to the CC. The latter’s job was, in essence, to carry out a detailed review of any merger or market problem referred to it by the OFT and then to impose remedies. That Act also sought to increase deterrence for those considering getting involved in secret price-fixing or market-sharing, by making it an imprisonable offence for individuals to take part in such cartels.

Finally, the coalition government decided to combine the OFT and CC into the CMA, in the Enterprise and Regulatory Reform Act 2013.

What is the CMA? Formally, it is a non-ministerial government department led by a board with a chairman and chief executive, and a majority of members appointed for fixed terms by the business secretary. Ministers have certain powers to issue it with guidance, but it generally operates independently, with most of its decisions being appealable to the CAT. Its officials used to be largely generalist civil servants but their ranks are now heavily dominated by lawyers and economists, and a spell at the CMA is now a frequent part of the CVs of successful practitioners in the field of competition law.

Any review of the performance of the CMA and its predecessors (I will just refer to all of them as “the CMA”) over the last 20 years would need a book rather than an article. But some headline points can be made. There has been a general criticism that the CMA has taken, compared to equivalents such as the French competition authority, relatively few cases concerning breach of the prohibitions: some early high-profile price-fixing cartel cases (relating to toys and replica football kits) were followed at the end of the noughties by an extraordinarily complex case involving a type of bid-rigging that had been common in the construction industry, where the CAT substantially reduced the fines imposed by the CMA, and more recent cases have focused on resale price maintenance (attempts by suppliers to stop retailers discounting their products) by relatively small operators.

On abuses of monopoly power, the CMA has been particularly interventionist on pharmaceuticals, with some dramatic successes and a couple of failures on appeal. Meanwhile, the CMA devoted a huge amount of resource to detailed investigations of competition problems in the energy and banking sectors, resulting in various remedies designed to improve the operation of those markets. The cartel offence has proved difficult for the CMA to operate, and recently it has focused on a power to seek director disqualification orders against individuals involved in serious breaches of the prohibitions—a power that it has had since 2002, but which had lain around unused.

The CMA now faces huge challenges, coming from two directions. The first is Brexit. Apart from state aid, Brexit does not involve much immediate change in the competition rules that apply in the UK: those will continue, though there are various ways in which the application and interpretations of those rules in the UK may start diverging from the rules as applied and interpreted in the EU. But Brexit is bound dramatically to increase the CMA’s workload in two ways.

First, while the UK was in the EU, most large mergers between international businesses with UK operations were dealt with by the Commission at EU level—the CMA will now have to look at the UK aspects of all of those mergers (about 60-70 a year). Secondly, while in the EU, the CMA left most international cartels (for example, price-fixing by airlines for carrying cargo and by truck manufacturers) and abuses of market power by huge companies such as Google and Microsoft to the Commission. Out of the EU, the CMA will have to decide whether to take up the UK aspect of such cases on its own, and when the Commission is taking action it will have to decide whether to take separate but parallel decisions imposing fines on those companies. The latter choice is going to be particularly tricky, as failure to move will look odd—if a cartel or monopoly abuse covered the UK, why should the perpetrators get away with not being fined in relation to its application to the UK? But such cases can’t just be run on a “cut-and-paste” basis, not least because the CMA will have to defend its decision before the CAT, which has shown itself to be a rigorous appellate court. Moreover, the CAT moves rather faster than the EU courts and also hears witness evidence, meaning that in a parallel case the CMA is likely to find that its decision gets to be subject to appellate scrutiny both well before the parallel Commission decision does, and in a way that offers better opportunities for defendants to overturn conclusions on factual issues.

Linked to Brexit is the CMA’s new role under the UK Internal Market Bill, to which I referred at the start of this article. That role will throw it straight into the maelstrom of devolution politics. Its position will become even more politically fraught if the Westminster government does decide to set up a UK subsidy control regime (or agrees to set one up as the price of a free trade agreement with the EU): the CMA is almost certain to be that independent regulator. All of that will open up—and has already opened up—questions about who appoints its leadership and to whom it is accountable. For example, should there be joint appointments by the UK and devolved governments rather than just the UK government?

All of these challenges hit the CMA at the point when the pressure on it to produce results is growing ever greater. Brexit itself—by putting up barriers to competition from suppliers of goods and services from elsewhere in the EU—will significantly reduce competition in many UK markets, increase the number of markets where there are only one or a few suppliers, make it easier to form cartels, and so increase the need for effective competition enforcement. But even before Brexit there were concerns that the CMA was not taking enough cases and was too slow in dealing with them, and in 2019 Andrew Tyrie—a former Conservative MP appointed chairman of the CMA in 2018—responded to those pressures by seeking increased powers for the CMA as well as a reduction in the extent of scrutiny of its decisions on appeal to the CAT.

Though no action has so far been taken on those proposals (and, indeed, Tyrie resigned earlier this year) that does not indicate that politicians are content with the current system.  On the contrary, right across the political spectrum—and not just in the UK—there are concerns that the economy is not working for many: that the returns to capital have grown at the expense of returns to labour and that at least part of those returns are in the form of economic rent rather than productive efficiency, and that certain businesses, especially in the tech sector, have acquired an unacceptable amount of economic and indeed political power. In competition policy, those concerns have led to a movement—sometimes referred to as “hipster antitrust”—that urges a fresh approach to the prohibitions on anti-competitive agreements and monopoly conduct that are the centrepiece both of EU and UK competition law and of US antitrust law. Those thinkers point out that the origins of antitrust and competition law—both in the US and in post-war Germany—lie in a desire to deal with unacceptable concentrations of economic power, and they argue that the tendency since the 1970s in competition law and policy to focus on consumer welfare—and specifically on low prices—misses that objective.

Signs of that thinking could be found in Tyrie’s suggestion in 2019 that the CMA be given a wide “consumer interests” remit to replace its statutory objective of promoting competition. They could also be found in a 2018 paper by John Penrose, a Conservative MP, in which he called for a new set of competition rules to address “new-economy challenges” and argued that the CMA and European Commission had not done enough to tackle the problems of increasing concentration and big data. That proposal now appears significant, because in September the current government asked Penrose to conduct a wide review of UK competition rules, which is now getting going. Finally, the CMA has been asked to look at reforming competition policy in digital markets, which may well result in specific rules applicable in those markets, in parallel to similar developments in the EU.

What does all this mean for the CMA? On one level, these proposals point to new powers and a much greater scope for forceful intervention. But a move away from competition rules based on a tight, price-oriented definition of consumer welfare also carries risks. One risk—which was one of the reasons the current approach was adopted on both sides of the Atlantic from the 1970s—is that, without an anchor of that kind, competition policy can easily turn into a mechanism to protect competitors whether efficient or not, and ossify into a series of rules that may inhibit innovation and ultimately the interests of consumers. Another risk is that once you start asking competition authorities to consider a wide range of policy objectives rather than to focus on a tight definition of consumer welfare, it becomes harder to predict what view they are likely to take, and if large fines can result from getting it wrong, that can also inhibit investment and innovation.

Moreover, looking at the CMA itself, one reason why it was entrusted 20 years ago with the large powers that it now has is that competition rules were thought to involve essentially technical questions of law and economics that could properly be left to a technically-qualified regulator. But once you start asking the CMA to look at a wide range of public policy objectives and balance them against each other, it becomes harder to defend leaving such decisions to non-elected officials with little democratic accountability. So any re-formulation of the competition rules enforced by the CMA, as well as its involvement in more and more politically contentious areas such as devolution and subsidy control, carries significant risks for the authority. As in myths about magical rings throughout the ages, gifts of power always have curses attached.