The European, Middle Eastern and African Antitrust Review 2017

United Kingdom: Competition and Markets Authority

21 July 2016

Former chief executive

It has been a busy and productive two years for the Competition and Markets Authority (CMA), since we formally assumed our powers in April 2014.

The establishment of the CMA was part of a major reform of the competition and consumer regime reflecting the UK government’s commitment to the proper functioning of markets and the wider economic growth agenda. Since April 2014, we have made significant strides, not just in implementing the initial design for the CMA and delivering over 200 cases but in preparing ourselves to adapt and further improve in the years to come. And as we have done so there has been no let-up in the pace or quality of our work.

I’d like to highlight six key achievements of the CMA to date:

The merger of the Office of Fair Trading and the Competition Commission to create the CMA

Mergers can be messy and expensive. This one has gone smoothly, at low cost and without disruption to our output. I am most grateful for all colleagues, past and present, and most especially our Corporate Services staff, for helping to achieve this.

The capability of the CMA

We have been able to retain and recruit a very talented and highly trained and motivated group of professionals. Add to that the new structures, business processes and organisational ethos we have been able to create, and we now have an agency of formidable capability.

Our strategies and priorities

The strategy adopted by the CMA Board in October 2013 is still serving us well, approaching three years later. We have chosen to focus our efforts on big high-value markets where we can make a difference for every consumer and every enterprise across the UK: energy, banking, legal services, transport and healthcare. We have delivered recommendations on passenger rail and buses, and finished our first big pharmaceutical case. We are close to completion of our work on energy and banking, and working towards a final decision on our second major pharmaceutical case. Our legal services market study started in January and is on track to complete before the end of the calendar year.

Our enforcement of competition and consumer law

We are determined to protect consumers – and benefit businesses and the wider economy – by the vigorous enforcement of the law, and have stepped up our enforcement in 2015/16 by opening 13 new competition and consumer enforcement cases, as well as completing investigations that make a positive difference to people’s lives. We are pursuing our enforcement, and other, cases with increasing pace but we have not sacrificed procedural standards, fairness and rigour to do so. While our results are at an early stage, we are on the right track and our foundations are set. In the past year we imposed fines totalling around £47 million and also secured two guilty pleas in two criminal cartel cases. In the past six months alone we opened a further 10 new competition enforcement cases – a level of activity that is without precedent in recent history of competition enforcement in the UK. Now the test is to see these cases through to successful conclusions, including where necessary in the appeal courts. In this regard we are encouraged by the fact that the CMA has been successful in 15 of the 19 civil cases across our portfolio brought before the courts.

Efficient merger control

In the past there have been questions about the ability of the UK authorities to handle cases at sufficient speed, and to manage the process in a way that is transparent and reasonably predictable and efficient. We took this on, and the progress we have made is demonstrated in the table below.

Percentage of Phase I investigations with formal pauses to statutory deadlines

  Good is 2014/15 2015/16
Percentage of Phase I investigations completed in 40 working days Higher 100 100
Percentage of less complex merger cases cleared within 35 working days Higher 23 74
Percentage of Phase I investigations with formal pauses to statutory deadlines Lower 17 12
Average number of working days across all Phase I cases Lower 37 34
Percentage of mergers found not to qualify Lower 12 3

Support the growth of the UK economy

The analysis we published in July 2015 shows the very positive impact of competition on productivity and growth across the UK economy. The CMA has produced well over £1 billion in direct consumer benefits over the past two years.

Let me now consider our work from four distinct stakeholder perspectives.

Consumers

It is the consumer who benefits from all of our work. Today’s
marketplaces offer many opportunities for consumers, but also pose challenges – and this is particularly true of the digital marketplace. The CMA has therefore put a lot of effort into researching the way in which digital platforms function, the role of online reviews and how consumer data is processed, and we have published our findings. We have also taken firm enforcement action to ensure that online reviews are genuine and not the result of unacknowledged payments or blatant fakery. This will help to ensure that consumers can continue to use online reviews to help inform their e-commerce choices – as 27 million of us do every year.

With regard to shopping around, people may think: ‘I’m a busy person who values my leisure time – as a consumer, do I need to bother with switching my service provider?’ In the course of our energy and banking investigations we have published hundreds of pages of evidence relevant to this question. I also gave a short speech in January on the subject of disengaged or ‘sleepy’ consumers. In all of this we reach the same basic conclusion: yes, it does matter – the consumer does need to bother. The consumer who sits back and declines to shop around and exercise choice will typically pay more – sometimes a lot more – for vital services such as energy and banking.

It is important to remember that some consumers find it more difficult than others to shop around, particularly if the best deals are to be found online. So we need to help all consumers, including those who are vulnerable in some way, to engage with the market and get the best deals. By engaging more fully in this way consumers will strengthen the competitive process whereby firms are under pressure from rivals to innovate and perform better to satisfy choosy customers. That is why the CMA energy and retail banking inquiry groups have proposed such an ambitious set of remedies for helping consumers to engage more effectively in the market.

The business community

Small businesses, and especially so-called microbusinesses, with 10 employees or fewer, are as economic agents much more like consumers than they are like bigger businesses. They don’t have the resources to do a lot of research or information processing, they don’t have any buyer power vis-à-vis major suppliers, and they often lack confidence in their choices – especially when confronted by the sort of gobbledegook we have sometimes seen from utility providers.

And in terms of outcomes, as customers these small businesses often get worse deals than individual consumers, as we have found in our energy and retail banking market investigations. So there is a strong case for saying that measures to help inform, empower and protect consumers should also be extended to assist small businesses, at least in these regulated sectors.

We are also keen to ensure that small businesses are aware of competition law. Last year we undertook a major survey of over 1,200 small businesses and found that just 23 per cent of them are confident in their knowledge of competition law, and 20 per cent have no knowledge of it at all.

This is concerning, not least because it is so much in the interests of small businesses to be aware of competition law. As customers, small businesses benefit from the downward pressures on price, and upward pressures on quality and innovation, that vigorous competition brings – and so they should know their rights when their suppliers try to frustrate competition by infringing competition laws. And as providers of goods and services, small businesses need to know how to comply with competition law, so as to avoid the sanctions and other adverse consequences that come from breaking those laws.

Our response to this has been two-fold. First, to step up our efforts to follow through on our competition enforcement cases, to make sure everybody else in that particular industry can draw the necessary conclusions. So, for example, after fining a group of estate agents in Hampshire for making localised agreements not to advertise their fees and discounts in a local newspaper, thus reducing competition on fees, we made sure the message that such agreements are illegal went out loud and clear to every estate agent in the country with a mass of publicity and warning letters and trade press articles.

Second, we have developed some innovative ways to make it easier for small business people to understand what competition law requires and why it is in their interests to follow it – not least as potential victims rather than transgressors. Our suite of tools for small businesses includes 60-second guides, and YouTube videos and animations we’ve put out there, with the help of stakeholders such as the Federation of Small Businesses.

For all businesses, large or small, uncertainty causes major problems. This is why at the CMA we work hard to tell people what we are going to do, what we are doing, and what we have done; and why.

We also put immense effort into our consultative processes, whether it be published consultation papers, formal hearings, workshops, bilateral meetings, the so-called ‘put-back’ process whereby those who provided information get to check for confidentiality and accuracy pre-publication, and the ‘access to file’ procedure in our enforcement work whereby the companies under investigation can review all the evidence we have gathered. This comes at a considerable administrative cost, but does have the great merit of helping to build understanding and confidence in our work, correcting any errors that might otherwise creep in, and – critically – ensuring fairness in procedure. And this all contributes to the precious stock of certainty.

Another way we can add to that certainty is in our role as the appeal body for disputes between economic regulators and regulated firms. The regulatory appeals we have conducted in the electricity, water and telecoms sectors have been some of our most important work, albeit passing relatively unnoticed by many of our other stakeholders.

The UK utility sector needs to attract tens of billions of capital over the next few years, much of it in the form of debt. It was therefore heartening to hear, as we did from the chief executive of one of the electricity distribution companies, that the CMA’s decision in the electricity appeal was ‘important for the confidence of investors’. Moreover, debt rating agency Moody’s has said that ‘the existence and judicious use of an appeals mechanism contributes to the stability and predictability of the regulatory regime’. And this, of course, contributes to keeping the cost of capital low, which benefits us all through lower bills.

We also hear voices from businesses of all sizes urging us to minimise regulatory burdens – a concern we understand, and have acted on. We initiated a review of all the merger and market remedies inherited from our predecessors, and found over half of these had been in place for over 10 years, and some went back 20 years or even 30 years. We have been able to remove over 70 per cent of the historic undertakings reviewed to date.

UK government and public bodies

We are an independent body, without a ministerial head. But we are a government department and we work a lot with other departments and public authorities to try to ensure the overall framework of policy is pro-competitive – and at least not actively harmful to competition.

One high-profile intervention we made last year was to criticise the plans from Transport for London which would have imposed excessive and harmful rules on companies like Uber offering competition and choice in London’s mini-cab market.

But I think the most striking example of our cross-government advocacy is our passenger rail services project. At the start of this project, the Department for Transport had some concerns about how realistic our proposals would be, and about potential adverse side-effects for their important franchising programme. It is a tribute to the skilful and painstaking work of the CMA team who undertook this project that they were able to publish in March this year a set of reform proposals that were both bold in envisaging more head-to-head competition on inter-city routes, but sufficiently detailed and thought-through to command the respect of the Department, the rail regulator and industry and passenger groups. The government welcomed our report and the CMA will work with them to explore how the recommendations could be potentially implemented.

The UK taxpayer

More competition on rail may help to reduce costs for taxpayers as well as paying customers, if it spurs improvements in productivity and capacity utilisation – and that is true of quite a lot of our work.

Indeed as part of the performance framework set by the Department for Business, Innovation and Skills and HM Treasury, we are obliged to deliver £10 in directly measurable consumer welfare for every £1 we spend.

Here are two examples of how the CMA’s work benefits UK taxpayers:

  • In public procurement, we have not only struck against hard-core cartels for manufactured products such as galvanised steel tanks and concrete pipes – products which are purchased by public authorities for public services, such as schools, hospitals and other commercial and public building works – we have also helped to train public procurement agencies in how to detect cartel activity.
  • Our pharmaceutical enforcement cases also have the potential to bring considerable benefits to taxpayers. We issued a statement of objections in the phenytoin case and a final decision in the paroxetine case, in each case alleging anticompetitive conduct in the relevant markets, which are worth hundreds of millions of pounds a year. The phenytoin case is not yet subject to a final decision and the paroxetine case is on appeal, so we will have to see how these play out. Where infringements are found in cases involving pharmaceutical companies, and these stand up on appeal, the NHS can bring follow-on claims for damages to recover any excess costs sustained, as it did in the OFT’s Gaviscon case.

Looking ahead

We are starting to see good results and we are focused on finishing what we started, both in terms of developing our organisation and seeing through our ongoing cases. The scale, pace and impact of our activity is increasing, and we will continue to strive to do more, better.

We are pleased with our continued progress, both in the development of our own organisation and, most critically, in the demonstrable impact we are making in the lives of millions of consumers.

In early July I left the CMA to join the Department of Energy and Climate Change as its Permanent Secretary. I was lucky – as was the CMA – to be able to hand over to someone as capable as Andrea Coscelli as acting CEO, and that David Currie will continue to provide wise and expert guidance from the Chair. While the challenges the CMA faces are considerable, the CMA is in good shape, and the foundations we have together laid down will stand the organisation in good stead. While we do not underestimate the challenge, the CMA is confident that it can continue the pace of improvement to secure the full benefits of being a single, integrated competition body, making markets work well for consumers, businesses and the UK economy.

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