On 20 July 2021 the UK government launched a consultation on a wide range of far-reaching changes it is proposing to the UK competition and consumer protection regimes. As a result of Brexit the UK is now in a position to decide, independently from the EU Commission, how it promotes and enforces competition law affecting UK markets. The CMA can be expected to conduct more investigations, many of which will be strategically significant to the UK’s economy and more complex than those previously undertaken by the CMA. The government is therefore keen to ensure that the CMA has the resources, powers and procedures to deal with these cases as effectively and efficiently as possible. The proposals also build on the proposed reforms put forward by Lord Tyrie, former Chair of the CMA and by John Penrose in his February 2021 report.
The proposed changes to the UK’s competition and merger control regimes include:
- Clearer and more regular steers from government to the CMA in order to ensure that competition policy is used to support the UK’s plan for growth and for its wider economic policy;
- A more efficient, flexible and proportionate market investigation regime;
- Changes to the merger control regime, including revised turnover thresholds to reduce the burden of merger control for small businesses and a new jurisdictional threshold to deal with so-called ‘killer acquisitions’ in fast moving markets;
- Stronger and faster enforcement against anti-competitive conduct, by adjusting the territorial scope of the Competition Act 1998 prohibitions, reducing thresholds for immunity from fines, introducing possible immunity from liability for damages for whistle blowers, stronger interim measures powers for the CMA, a more streamlined settlement process, enhanced evidence gathering powers, greater flexibility for internal decision-making and potential reforms to the appeals process and the Competition Tribunal’s (CAT) rules;
- Stronger investigative and enforcement powers across competition tools, including tougher penalties for failure to comply with an investigation, personal accountability for directors for the provision of evidence, stronger penalties for failure to comply with remedies or commitments and stronger powers and tools for more effective international cooperation.
We have set out below in more detail a summary of the key changes proposed for the UK competition and merger control regimes. Comments on the consultation are invited by 1 October 2021.
The Government has separately also launched a consultation on the new pro-competition regime for digital markets for the most powerful digital firms with ‘Strategic Market Status’ (SMS), overseen by the Digital Markets Unit (DMU). This will be covered separately in our next blog post.
A new pro-competition strategy for the UK
The government is seeking feedback on whether it should take a more active approach in setting the strategic direction for the UK’s competition policy. In recent decades competition policy has been driven by a move away from political intervention towards decisions by impartial, independent regulators. Independent evidence-based decision making remains crucial to an effective competition policy, but the government considers that to be truly effective, its regulatory and economic policy needs to be supported by strong and effective competition law that also responds to the strategic needs of the UK’s economy. In order to deliver this the government is proposing:
- State of Competition reports: the CMA should produce regular ‘State of Competition’ reports which assess the strength of competition in the UK economy, providing government with better evidence to inform its overall competition policy an help shape any future action. The government is seeking views on the metrics and indicators the CMA and government could use to better understand and monitor the state of competition in the UK;
- A new approach to government’s strategic steer to the CMA: the government has traditionally provided the CMA with a high level strategic steer for each Parliament, which the CMA takes account of when assessing the strategic significance of its work in accordance with its published prioritisation principles. The government is now seeking views on the merits of a more active approach to setting the CMA’s strategic steer, including making it more regular and updating it to ensure it remains relevant to the issues facing the UK. It will also ask the CMA to set out more clearly in its annual plan and annual report how it is responding to the strategic steer as well as any problems with competition identified in its State of Competition reports.
The steer would remain non-binding and the CMA would be free to depart from it if it believed it appropriate to do so.
More effective market inquiries
Market inquiries (market studies and market investigations) are one of the most powerful tools for promoting competition in UK markets, but the government is concerned that their processes are overly complex and that these tools are significantly underused. The government is therefore proposing a number of reforms in order to achieve a more efficient, flexible and proportionate market inquiry process and it is seeking views on two alternative proposals:
- Retaining market studies and market investigations, but enabling the CMA to impose certain remedies at the end of a market study;
- Replacing the existing market study and market investigation system with a new single stage market inquiry tool.
In addition, other proposals include:
- New powers for the CMA to take interim measures in market inquiries earlier in the market investigation process (currently it can only do so after it has issued its final report finding that there are adverse effects on competition). These powers may need to be subject to additional limitations and safeguards in order to avoid the risk of prejudicing regulatory incentives and unintended market distortions;
- New powers to resolve competition concerns more quickly through binding commitments, which is seen as a good way to speed up some market inquiries by allowing the CMA to agree solutions earlier in the process, thereby avoiding the need for a full investigation;
- A more versatile and effective process for remedy design, with a power for the CMA to require businesses to participate in implementation trials, which would allow the CMA to test and trial how best to implement its remedies;
- A greater ability to review and revise remedies from previous investigations in order to ensure they are effective, meeting their intended objectives and to avoid the risk that the benefits of the CMA’s market inquiries would be lost over time. Safeguards would be necessary to protect remedies from becoming subject to perpetual review.
Rebalanced merger control
On the whole the government believes that the UK merger control regime is working well, and that the current voluntary and non-suspensory process continues to strike a balance between consumer protection and regulatory burden. It also accepts there is scope to update the jurisdictional thresholds and processes in order to enable the CMA to better scrutinise potentially harmful mergers while reducing costs to businesses in other cases.
Proposed changes to the jurisdictional thresholds include:
- Raising the current turnover-based threshold for the target of a merger from £70 million to £100 million, to adjust for inflation and maintain the balance intended when the UK merger regime was created;
- Creating a safe harbour for mergers between small businesses, where the worldwide turnover of each of the merging parties is less than £10 million, which would exclude these transactions from the CMA’s jurisdiction even if they would otherwise qualify for review under the share of supply test;
- The share of supply test will be retained as a complement to the turnover test, but the government is considering adding a new test to ensure the CMA is able to review a wider variety of potentially harmful mergers more reliably. The focus here is on mergers that remove potential competition from a market and mergers that facilitate the leveraging of market power across different products or services. The new jurisdictional test would allow the CMA to review a merger if any business which is a merging enterprise 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 government is aware that concerns have been expressed by businesses over the flexibility of the share of supply test, which may reduce the predictability of the UK merger control regime for certain businesses and investors. It is asking for views on how the share of supply test could be reformed to deliver greater predictability for merging businesses without prejudicing the overall effectiveness of the regime.
Proposed changes to the merger investigation procedures, in order to ensure that merger investigations are carried out as quickly and efficiently as possible, thereby reducing unnecessary burdens on businesses and allowing the CMA to manage a larger and more complex workload include:
- Allowing the CMA to agree binding commitments earlier during phase 2. If this proposal is taken forward government would consider whether the CMA would need a new power to pause the investigation while commitments were being considered;
- Restricting the CMA to refer only the issues that are identified at phase 1, which may assist in streamlining the competition analysis carried out at phase 2;
- A new improved ‘fast track’ merger route to encourage greater use of the system;
- Reducing unnecessary delays at phase 2.
Streamlining CMA panel decision making
The government is seeking views on whether the CMA panel should be retained but reformed as follows:
- Size and composition: it proposes a smaller pool of dedicated panel members for whom work on the CMA’s panel is their primary employment. The government believes that having a smaller, more dedicated pool of panel members should help to speed up cases and should deliver more consistent and predictable decision-making for businesses.
- Role: to reflect the smaller number of panel members, government is considering revising their role to making final decisions on theories of harm and remedies. This would retain the role of the CMA panel as a ‘fresh pair of eyes’, while allowing greater administrative flexibility during the course of the investigation.
Stronger and faster enforcement against unlawful anti-competitive conduct
Government commends the CMA’s work to improve the efficiency of its investigative processes, but remains concerned that timeframes for Competition Act investigations are too long, with one third of the investigations taking longer than three years. Following the UK’s exit from the EU it is important that the CMA is able to conduct large and complex investigations efficiently.
The government is not proposing, as had been suggested by the CMA, to introduce a statutory duty of expedition. The CMA already has a primary statutory duty to promote competition for the benefit of consumers, which implies that the CMA should use its resources and powers to conduct its enforcement investigations as efficiently and effectively as possible, without undue delay. Instead, it is proposing a range of reforms to the CMA’s powers and processes which should support the CMA in conducting its investigations more quickly and efficiently. It is also considering the merits of providing indicative timescales as targets for the completion of Competition Act investigations, in the revised strategic steer to the CMA.
The consultation focuses on the following reforms:
- Amending the territorial scope the Competition Act prohibitions, removing the requirement for an agreement to have been, or been intended to be, implemented in the UK, and under the Chapter II prohibition the requirement for a business to have a dominant position within the UK or any part of it. Under the amended jurisdictional requirements
- The Chapter I prohibition should apply to anti-competitive agreements which are, or are intended to be, implemented in the UK or which have, or are likely to have, direct, substantial and foreseeable effects within the UK;
- The Chapter II prohibition should apply to conduct which amounts to the abuse of a dominant position in a market, regardless of the geographical location of that market, where the conduct takes place in the UK or has, or is likely to have, direct, substantial and foreseeable effects within the UK.
- Immunity from fines for small agreements and conduct of minor significance: the government is considering reducing the current threshold for immunity from fines for both Chapter I and Chapter II infringements to companies with an annual turnover of less than £10 million (down from the current £20 million for Chapter I and £50 million for Chapter II).
- Incentives for leniency applicants: the government is seeking views on the merits of providing businesses that benefit from full immunity from fines under the CMA’s leniency programme with additional immunity from damages claims, in order to incentivise more applicants and mitigate concerns that leniency applicants can be an easy target in follow-on damages claims.
- Protections for whistle-blowers: the government is seeking views on the merits of an absolute prohibition on the disclosure of a whistle-blower’s identity, unless the CMA relies on the whistle-blower’s evidence as part of its infringement decision.
- Strengthening the CMA’s interim measures powers: to date the CMA has only used its interim powers once, and the government is looking at ways to make it easier for the CMA to use this tool, while balancing the businesses’ rights of defence. Options for updating the current approach include:
- Changing the rules on access to file in relation to interim measures, so the CMA is only required to provide the business with notice of the proposed decision and reasons, but not to provide access to the CMA’s underlying file;
- Changing the standard of review if a decision is appealed to a judicial review standard.
- Stronger evidence gathering powers, including wider powers to interview relevant witnesses, more effective requirements for businesses to preserve evidence and more flexible dawn raid powers for domestic premises (including powers to ‘seize-and-sift’ evidence when inspecting domestic premises under a warrant).
- A more effective settlement regime: the government is seeking views on a range of options to enable greater efficiencies from the settlement process, including:
- Allowing the CMA to rely on admissions of fact or liability by a business that entered freely into settlement with the CMA, without the need for further corroboration of those facts;
- Short form decisions in circumstances where admissions from a settling business are binding and where all parties have chosen to settle;
- Removing certain requirements in relation to the settlement process from the CMA’s rules in order to achieve a more streamlined process;
- A new settlement tool for abuse of dominance investigations, which would allow the CMA and the business under investigation to enter into an Early Resolution Agreement.
- Encouraging businesses to offer voluntary redress, by protecting documents prepared by a business to seek approval and operate a voluntary redress scheme from disclosure in civil litigation.
- Appeals before the Competition Appeal Tribunal: the current standard of appeal against Competition Act decisions is one of appeal on the merits, providing a detailed review of the law and of the facts by the CAT. The CAT can hear fresh evidence, including evidence not before the CMA and make findings of both fact and law. The government is seeking views on whether this remains the appropriate level of judicial scrutiny for decisions by the CMA in Competition Act investigations. The government has recently concluded a call for evidence on the 2015 amendments to the CAT’s rules, but is asking whether there are any reforms that fall outside the scope of the recent statutory review and would increase the efficiency of the CAT’s appeal process for Competition Act investigations.
Stronger investigative and enforcement powers across competition tools
The government is also proposing a range of reforms that would apply across the CMA’s competition tools and are intended to remedy more harm more quickly. It is concerned that gaps in the CMA’s information gathering powers may have developed over time, and is therefore seeking views on additional evidence gathering and enforcement powers to ensure the CMA’s enforcement capabilities are in line with international best practice. These include:
- Tougher penalties for companies that slow down or obstruct investigations: the CMA can currently fine a business £30,000 and/or a daily rate of £15,000 if it fails to comply with its information gathering powers. This level of penalties is significantly weaker than that of other competition authorities in Europe and government is therefore proposing that the CMA should be able to impose fixed penalties of up to 1% of a business’ annual turnover as well as an additional daily penalty of up to 5% of daily turnover where not-compliance continues. The penalties would be available where a business fails to comply with an information request or other investigative notice issued by the CMA, where it conceals, destroys or falsifies evidence or where it provides false or misleading information to the CMA.
- Personal accountability for the provision of evidence: government is considering whether a false declaration by a director should attract the same civil penalties as for supplying false or misleading information (for individuals capped at £30,000 with a possible daily penalty of £15,000) and should provide grounds for director disqualification.
- Wider prohibition against providing false or misleading information to the CMA: government is considering whether to extend the current prohibition against the provision of false or misleading information and the proposed fining regime to the provision of information in response to voluntary information requests outside the CMA’s formal investigatory function.
- Stronger penalties for companies that fail to comply with remedies imposed or accepted by the CMA: government proposes to give the CMA the power to impose civil penalties on companies that fail to comply with the CMA’s directions, orders or undertakings or commitments the company has given to the CMA, capped at 5% of annual turnover with an additional daily penalty of 5% of daily turnover where non-compliance continues.
- Stronger powers and tools for more effective international cooperation: government is working with the CMA to negotiate cooperation agreements with a number of the CMA’s international counterparts. It is looking to update Part 9 of the Enterprise Act 2002 to provide for clearer and more flexible rules for information sharing between the UK competition authorities and their international counterparts and to allow the UK competition authorities to use their compulsory information gathering powers to obtain information on behalf of overseas authorities.
Other reforms to UK competition law
The CMA’s experience over the last seven years has highlighted several other technical improvements that can be made to the UK’s competition law system. The government is seeking views on the following reforms:
- Enhanced use of ‘assisting offenders’ in criminal cartel enforcement: not all individual suspects will be eligible for ‘no action letters’ and immunity from prosecution under the CMA’s leniency regime, but they may still wish to assist the CMA’s investigation by becoming an ‘assisting offender’. The use of assisting offenders is regulated under the Serious Organised Crime and Police Act 2005 (SOCPA) and the Sentencing Act 2020. The government proposes to amend SOCPA so the CMA becomes a specified prosecutor and can use the assisting offender process to enhance its criminal cartel enforcement.
- A mechanism for the CMA to require repayment of discounts to penalties: government is seeking views on the merits of allowing the CMA to reclaim discounts to penalties if a party fails to carry out a promise for which a discount was granted.
- Enabling the CAT to issue declaratory judgments in private action cases: government proposes to extend the CAT’s jurisdiction to grant declaratory relief.
- Extended deadlines in public interest interventions in media mergers: government proposes that where the Secretary of State has issued a Public Interest Intervention Notice in relation to a completed media merger, the Secretary of State should have the power to extend the deadline for referral to phase 2 once, by a period of 28 days.