Understanding Regulation

Facts, Analysis and Comment

The Competition and Markets Authority

(The role of the CMA, and the reasons why it was created, are summarised here. This web page discusses the CMA's performance.)

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.'

2016 Consultation

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:

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!

Martin Stanley