(The role of the CMA, and the reasons why it was created, are summarised here. This web page summarises subsequent developments.)
The National Audit Office published a report in February 2016 on the Functioning of the UK Competition Regime, focussing in particular on the first couple of years activity of the CMA. Its overall conclusion was some improvements could be identified, but that the authority had as yet failed to address the key failings of OFT when attacking cartels and abuse of dominance. It was particularly noteworthy that the UK competition authorities had issued only £65 million of competition enforcement fines between 2012 and 2014 (in 2015 prices) compared to almost £1.4 billion of fines imposed by their German counterparts.
It was noteworthy, too, that the new regime cost £12m pa more than its predecessor, and that part of this additional cost had gone into increasing the salaries of staff so as to reduce the rate of loss to other regulators following a severe dip in morale following the OFT/CC merger. The CMA itself now cost £66m pa, of which only £36m could be attributed directly to competition work, the rest being property, IT and other administration costs. Other regulators costs brought the total cost of UK competition enforcement to £66m pa, again not including property etc.
There were some signs that the phase 1/2 distinction had indeed become slightly blurred - one of the concerns voiced by those who had opposed the OFT/CC merger. In particular, staff who had decided that there was a problem at phase 1 were now being employed to advise the phase 2 decision makers, thus risking confirmation bias. And significant effort was still being made to agree remedies at phase 1 so as to avoid a more in-depth phase 2 investigation - which might well lead to a merger being prohibited. The NAO noted that 'The CMA is expanding the practice of clearing cases with remedies in phase 1 without the need to go for a more detailed and resource-intensive phase 2 review, and is making efficiency gains from using some of the same people on both phase 1 and phase 2 investigations'. But businesses and their advisers were said to be 'positive about the quality and continuity of the CMA’s merger teams, and told us that they valued having early discussions with decision-makers'.
[The CMA separately published a summary of its merger decisions. The CC's clearance rate had been 38% between April 2004 and March 2009. This increased (following the OFT's decision to settle as many cases as possible at phase 1) to 53% between April 2009 and March 2014. And the rate increased yet further - to 60% in the first 22 months of the CMA's existence through to January 2016. These figures hardly suggest confirmation bias, but they do suggest that both the parties to the merger and the CMA were anxious to settle at phase 1 so as to avoid detailed examination, and possibly tougher remedies, at phase 2.]
The NAO also noted that 'The CMA is currently investing 16% of its front-line competition resources in two high-profile market investigations into energy and retail banking' and made the obvious point that the results had better be good if the CMA's reputation was not to be damaged.
More generally, the NAO repeated concern about the ease and length of the UK's competition appeal processes:- '... many stakeholders and legal practitioners we spoke to think there are strong incentives for businesses to litigate if they lose a case, which can lead to risk aversion in the competition authorities. One stakeholder told us that the UK was the best jurisdiction in the world to defend a competition case; this was consistent with the views of several other interviewees.'
The Business Department issued a further consultation document on 25 May 2016 with an appallingly short timetable - responses being required by 24 June. This is itself spoke of Ministers not wanting to read serious, considered comment, but instead having already decided to make further changes to the regime. The document itself was a strange thing, including a two and a bit page introduction which lauded the virtues of the current regime, as well as an assurances such as that "The UK's competition regime is rightly considered one of the world's best." But market investigations were still taking up to two years and the the separation of independent part-time decisions makers (the inquiry groups) from investigatory staff was expensive.
The Government was accordingly considering:
- reducing the involvement of the inquiry groups in day-to-day inquiry decision-making, which would in future be the prerogative of CMA staff,
- allowing the CMA Board to restrict the resources available to individual inquiries,
- 'professionalising' the inquiry panel (the group from which inquiry groups are formed) by reducing it down to only 12 members who would be required to make themselves available for a minimum time each year,
- allowing outside experts to be added to inquiry groups when demand or expertise required additional resource,
- allowing senior CMA staff to join inquiry groups,
- shortening the length of appointment of members of the inquiry panel,
- allowing the CMA Board to refuse extensions of market investigation timescales beyond 18 months,
- encouraging the CMA to 'improve' its working practices so as to reduce the burden on business.
To old hands, this all smacked of wanting to cut cost by reducing the depth and quality of the CMA's investigations, and in particular reducing the extent of external scrutiny of the CMA's inquiries (e.g. by independent part-time decision-makers) and so reducing the accountability and increasing the power of CMA staff, and the CMA's Board. Others would no doubt merely see the CMA becoming more like other competition authorities, such as the European Commission,and what is so wrong with that?
The Brexit Referendum was then held on 23 June 2016, whereupon all went very quiet!
There were welcome signs, from 2016 onwards, that the CMA was successfully ramping up its competition enforcement activity. Outside observers saw greatly improved focus on achieving results, and the rate of opening of new cases rose from a historic 6.8 pa to around 12pa. They were also being completed more quickly. A Hampshire estate agents/newspaper cartel investigation was completed in 15 months compared with a historic average of over three years.
Ex-Conservative politician Lord (Andrew) Tyrie was appointed CMA Chair in 2018. In August that year the Secretary of State asked him" for advice on legislative and institutional reforms to safeguard the interests of consumers and to maintain and improve public confidence in markets." Lord Tyrie replied in February 2019 suggesting considerable new powers for the CMA (particularly when carrying out (previously informal) market studies) and reduced scope for appeals against its decisions. He also asked that there should be a new statutory duty on the CMA, etc. to treat the interests and protection of consumers as paramount . In other words, consumer interest (whatever that is) would replace competition as the overriding statutory duty.
Bruce Lyons' scathing commentary is here. He questions (amongst other things) the factual basis of the CMA's proposals, and notes that
"Cutting out the role of markets/ competition and fast-tracking to “the consumer interest” risks a wide-ranging and paternalistic determination of what is the consumer interest. This echoes the language and problems of previous “public interest” tests. There is a worrying absence of any discussion in the Tyrie letter of how the consumer interest will be determined. What exactly is the consumer interest other than in relation to what the market provides?"
Professor Lyons also expresses concern that there may be an unstated move further away from decision making by independent panels and towards decision making by staff.
Peter Freeman, former Competition Commission Chair, was equally scathing in a speech which focussed on 'the old chestnut' of regulators' criticisms of appeals processes. He pointed out that Lord Tyrie's criticisms of the appeals process had almost nothing to do with the substance of his letter and included (from para 12 onwards) a superb summary of the original reasons - still valid today - for the creation of the modern enforcement system.
Mr Freeman added a brief but interesting note that it would of course be possible for the UK to switch to a prosecutorial system under which the CMA would present its cases before the CMA for adjudication, which would inter alia address any of the burden/delay concerns. It will be interesting to see if the government does indeed reopen consideration of this possibility. A similar system already operates in the USA, Australia and Hong Kong.
Is Competition Enough?
Lord Tyrie followed up his February 2019 letter by making a very thoughtful and interesting speech "Is Competition Enough?" in May that year. It is worth reading in full but my initial reaction was as follows:
The CMA (the UK’s principal competition authority) has clarified its earlier request for more powers. Its Chair, Andrew Tyrie, delivered an important speech yesterday in which he argued that:
‘The evidence indicates both that competition policy is lacking in vigour, and that it is too narrowly focused on process, rather than practical outcomes for millions of consumers. … Just as the pace of change in markets in accelerating, the competition framework is taking ever longer to get results. In the time it takes to reach a decision and go through the appeals process, markets may move on. The detriment will be developing somewhere else.’
So he wants the CMA to be more assertive:
‘If we don’t contribute to finding the solution to the demise of trust in markets, we increase the danger of being cast – by populists on the left and right alike – as part of the problem. This will put at risk the foundation of an independent competition regime, and many of the welfare gains derived from it. And presage a return to the days when competition policy was subordinated to daily politics.
If [competition authorities] are to secure legitimacy in this febrile environment, they should do one of two things. Either they should ask for the tools to address public concerns about markets, or they should have the courage to tell politicians that it is their responsibility, and say so publicly, and if appropriate – given their remit – advocate how.’
The CMA’s current processes mean that …
‘… it is slow – it can take over 3 years before the CMA is in a position to order remedies, even in cases where the failure to act urgently can cause lasting harm…. if the CMA identifies – during its markets work – a practice that is harming consumers, it should be able to order it to stop, pending an investigation, under threat of a fine for those who might flout its order.’
Accordingly, the proposals include
‘measures to increase board-level responsibility for complying with the law, so that competition and consumer protection are in the minds of company directors. And it is proposed that, for serious breaches of consumer protection law, director disqualification should be a possibility. Just as it is for competition law offences.’
On the other hand, Lord Tyrie suggests that the CMA’s powers should be rolled back in other areas:
‘These include removing the CMA’s responsibility in respect of regulatory appeals, which may be better heard by the courts. They also include transferring primary responsibility for the prosecution of criminal cartels, which may sit more naturally with a law enforcement agency that routinely brings criminal prosecutions.’
There is much to applaud in Andrew Tyrie’s speech. The principal difficulty, however, is that the CMA is a quasi-judicial body – so it, and its predecessors, have always taken great care not to take any decisions before giving those it investigates a fair opportunity to state their case and adduce relevant evidence.
As Andrew Tyrie says in his speech “I was struck, when I took up this role, by how little [the CMA] says in public”. But there was a good reason for this, and the CMA will inevitably find its decisions judicially reviewed if they appear to have resolved in advance “to do something about” an unpopular company or industry – or if they take enforcement action “pending an investigation” – and then confirm their own suspicions. It might be a price worth paying, of course, but the CMA will need to tread carefully.
I was also struck by Lord Tyrie’s implied belief that he can bring about more rapid change by making recommendations to the government. He points out that Ministers have asked the CMA to “actively challenge central and local government”. Hmmm … I wonder. The CMA recently called on the government to legislate to end the dominance of KPMG, PwC, EY and Deloittes and their conflicts of interest in the audit market. But the CMA could itself have begun an 18 month Market Investigation which could have triggered very strong interventions. Politicians might move faster, but I am somewhat sceptical that they will always do so.
Finally, having worked in this area for several years, my instinct is that it will not make sense for other organisations to hear regulatory appeals or mount cartel prosecutions. I suspect that these duties simply do not interest Lord Tyrie, but that is no reason to get rid of them. But maybe I am being unfair. It will be interesting to see others’ reactions.
Tackling Modern Problems
Despite my cool reaction to the creation of the CMA, it has since become clear that it might have been difficult for its two predecessor bodies to gather together (as the CMA has done) the resources and expertise necessary to understand and tackle the consumer and competition implications of the rapidly increasing commercial use of AI and algorithms.
The CMA's Ann Pope delivered a useful review of the the CMA's post-merger performance and the future of competition enforcement in November 2018.
A 2020 report by Allen & Overy concluded that the CMA had become the most aggressive antitrust enforcer worldwide, thwarting 6% of the merger deals it assessed over the previous five years, compared with 1% in the US and Germany. It had also increased the fines it had levied.