Informa UK competition law conference

27 Feb 2024 12:36 PM

A speech delivered by Martin Coleman, Non-Executive Director and Panel Chair, Competition and Markets Authority on 'why outcomes matter'.

Development of the CMA

I was recently reminded by the chair of the CMA that I am now the longest serving CMA non-executive director having joined the Board in 2017 after a career in private practice. When I compare the organisation as it is now to the body that I joined there have been significant changes. New needs and challenges have arisen: the impact of Brexit, the consequences for UK businesses and consumers of the pandemic, the war in Ukraine and the exponential development of digital platforms, to name a few. And the CMA has evolved and adapted to these:

• we now consider how the largest global mergers will impact competition in the UK. In antitrust enforcement, we are investigating conduct which crosses borders, working alongside other authorities
• we have established a Digital Markets Unit reflecting a much better understanding of the role that digital platforms play in the economy; the significance of such platforms for businesses and consumers and the important role of competition policy in supporting the digital economy
• since Brexit, we have additional responsibilities and new powers to carry them out. We now advise on public subsidies, and report on the UK’s internal market
• we have expanded and opened offices across the country, demonstrating a more concerted and explicit focus on engaging with our stakeholders – the people, businesses and governments in the nations and regions of the UK

With any new responsibility comes increased accountability and often increased scrutiny. In parallel with the developments I have described, further changes in the broader economic environment - such as the cost of living crisis and the need to encourage growth and productivity - have indeed led to increased interest and debate around what we do and why we do it. We are highly aware that it is more important than ever for us to be clear about how we choose to exercise our powers and what we seek to achieve when we do so.

Choices

There are many more things that we might like to do, or others may wish us to do, than we have the resources to achieve. We are deeply thoughtful and analytical in our decisions about how to use limited resources in the most effective way. We have a public responsibility to be open about the choices we make, and we have published prioritisation principles to make this as transparent as possible. We have also reformed our pipeline co-ordination process, helping us plan and manage our resources as strategically as possible. As Bill Kovacic has put it: ‘No function is more central to the operation of a competition agency than making decisions about what to do with its powers and resources’ (see William E. Kovacic, Deciding What to Do and How to Do It: Prioritization, Project Selection, and Competition Agency Effectiveness, 13 Competition Law Review 9 (June 2018)).

In this talk I propose to address 2 issues fundamental to how we make such choices. First, the evolution of the powers, or ‘tools’, we have available to address competition concerns. Second, how we apply those tools focusing on the outcomes we are tasked to deliver.

Tools

As someone whose professional career was spent advising clients about the competition regime, I have a natural tendency to think first about different ‘tools’ - the powers to: review mergers, investigate potential infringements of the prohibitions against anti-competitive agreements and abuse of dominance, enforce consumer law and initiate inquiries into markets that might be failing. This is after all what businesses and consumer organisations are interested in when they consult their professional advisers: Might the competition authorities prohibit a proposed merger? Will the authorities or courts find that an agreement infringes Chapter 1 of the Competition Act? What consequences might a market investigation have for a specific business?

And tools are of course important to us as a competition authority. Without the right tools we would be unable to do our job. But we are increasingly aware, as we strive for ever greater impact from our work, that the tools do not define what we do. A toolbox is a means to achieve an end – in our case helping people, businesses and the UK economy by promoting competitive markets and tackling unfair behaviour.

Outcomes

It is therefore necessary that we pay attention to the outcomes we need to deliver; set our priorities to achieve the desired outcomes and evaluate problems to be solved against those priorities. We then choose the tools best suited to deliver the right solution to the problems.

The CMA is required to produce an Impact Assessment of the direct financial benefits we return to taxpayers from our work each year. The average ratio of direct benefits to cost over the last 3 years was £25.8 for every £1 spent.

Concentrating on outcomes is not just a means of holding ourselves accountable for this value and constantly striving to improve on it. Neither is it solely a means of demonstrating the benefits of our work - although it has that very significant advantage. Nor is it just to provide a strategy for selecting areas for discretionary work - although again, it has that advantage.

Concentrating on outcomes is a discipline which helps us to use our tools as effectively as possible:

• first, focusing on outcomes can help us use our existing tools flexibly in response to developing concerns, as we are doing in labour markets and climate change
• second, attention to outcomes can help us think outside of our formal tools, and undertake more informal work that is going to deliver most effectively
  • in our recent work in groceries markets we looked at the issues outside the structure of a formal market study. And, while it is important for the CMA to take on its new statutory powers to monitor fuel prices, we in the meantime set up a temporary fuel monitoring system, relying on information provided voluntarily
• finally, a regard to outcomes can encourage us to use several tools in a complementary way to tackle different aspects of a single issue
  • for example, housing costs and availability are areas of widespread concern. The CMA has worked across its tools to help deliver for consumers. That includes (i) competition law enforcement in the construction sector, to help keep the costs of constructing new houses low (ii) consumer protection work in the rented housing sector to help us identify where enforcement action may be necessary and (iii) a market study into housebuilding published yesterday which indicates the need for a substantial intervention in the housebuilding market and includes recommendations to government on estate management charges and options to reform the planning system. We are also opening a new investigation into suspected anti-competitive behaviour by housebuilders

Annual Plan

And that focus on outcomes has been the impetus for how we have adapted our strategy over the last year set out in our annual plan. Our 2023 Annual Plan marked the start of a new chapter for us, with a new overarching strategy framework for the mid to long term. One of the benefits of being an independent arm’s length body, of course, is that we can provide this longer-term certainty and stability for our stakeholders, which is often challenging in the world of politics.

We produced a draft of our plan for the year from April 2024 in December and we shall be publishing the final version shortly. Our strategy has 3 ambitions, based on who we serve: (i) people (ii) businesses and (iii) the economy.

• first, we want people to be confident they are getting great choices and fair deals. That includes taking action in the areas that matter most to people – such as having somewhere to live, feeding our families, looking after ourselves and others, and buying the goods and services we need online
• for businesses, we want competitive, fair-dealing businesses to innovate and thrive. Our role includes tackling the behaviour of a small minority of businesses that try to harm consumers, restrict competition or prevent markets from functioning properly
• for the economy, we want to help it grow productively and sustainably. We will prioritise our work in sectors which may have a particularly positive impact. For example, we want to take a forward-looking approach in nascent markets, to help them develop in a positive direction for competition and consumer protection. Over the long run, this will help drive innovation, investment, and economic growth

And we use our tools appropriately and proportionately, to deliver those outcomes.

Digital markets reforms under DMCC

One area which cuts across all of these ambitions is digital. Ubiquitous and entrenched, as it is, in all our lives today. I therefore want to turn to the Digital Markets Competition and Consumers Bill.

The Bill currently before Parliament is designed to unlock a new era of digital innovation and investment in the United Kingdom. And it aims to do this not by broad brush, one-size-fits-all regulation that creates barriers to innovation, or unnecessary burden for businesses. Instead, the regime has been consciously designed to be highly flexible, bespoke, and targeted, helping to address the market power of a small number of technology firms.

The CMA is charged with responsibility for the new regime and we believe it will be a significant contribution to our ability to deliver those desirable outcomes I talked about. What does this look like in practice? As I said, the Bill is still before Parliament. But we have been preparing for the last 3 years to ensure the expertise, resources, processes, and governance are in place on Day One. Last month, we published an Approach Document, providing an overview of how we will operate the regime. I want to pick out 4 themes:

• first: we are committed to a targeted, evidence-based and proportionate approach. We will be responsive to market developments and prioritise where we can have the most impact
• second: we will promote competition as the primary lever to deliver better outcomes for users. Where improved competition alone won’t deliver the necessary changes – or won’t do so sufficiently quickly – we will take direct action to prevent harm
• third: we will promote coherence with the wider regulatory landscape. The new regime will complement the CMA’s existing tools, and we will coordinate with both domestic and international partners to maximise synergies and minimise duplication where possible
• fourth: and finally, the regime is designed to be participative, collaborative and dynamic and we hope that SMS firms, challengers and users take the opportunity to participate constructively. In that spirit, our CEO, Sarah Cardell, led a CMA delegation to the US West Coast at the start of this year, to meet a wide range of digital firms to deepen our understanding of their businesses. We plan to convene and consult groups representing UK consumers, businesses and tech professionals. And of course, soon after Royal Assent, will be publishing draft guidance on the main components of the regime for consultation, and we will be very interested in hearing your views

Consumer protection reforms under DMCC

Now this is a competition law conference, but I am going to mention consumer protection, and the significant changes the Bill will introduce on this front. I make no apologies for doing so - good consumer outcomes rely on competitive markets. And vibrant competition relies on confident, informed consumers, who can compare different offers, make informed choices and trust markets.

Misleading practices by suppliers weaken our ability to choose between products. And where we, as consumers, find it harder to choose, the result will be weaker competition. So, competition law and consumer law operate together to help markets work effectively.

The Bill marks a step-change in the UK’s consumer protection regime, addressing long-standing concerns - most notably that enforcement is long and costly and there are no material financial consequences for businesses that break the law.

The new consumer administrative model under the Bill means that the CMA will take responsibility for deciding where consumer law has been breached. We will have powers to impose penalties for infringements of up to 10 per cent of a business’ turnover.

Under this new framework, consumer law will be enforced faster, and more effectively. This will considerably strengthen our ability to protect consumers from harmful conduct and deter businesses which do not play by the rules. It will also help level the playing field, allowing for stronger competition between fair-dealing businesses.

Examples of focus on outcomes

Now, stepping back from the DMCC Bill to some areas of focus for the CMA which will be familiar to those of you who have read our draft 2024 to 2025 Annual Plan. I will briefly cover 4:

• helping people by tackling the cost of living
• ensuring that workers, businesses and economic growth are supported through well-functioning labour markets
• accelerating the transition to a net zero economy and promoting environmental sustainability
• protecting consumers, fair dealing and innovative businesses and the wider economy by addressing cartels and anti-competitive mergers

I want to illustrate how we are working flexibly with our tools in these areas to deliver on our objectives, again consistently focused on outcomes.

Area 1: Cost of living

Let me start with the cost of living.

Inflation has thankfully reduced from its peak, but people and businesses continue to grapple with the cumulative effect of a sustained period of higher inflation, and the higher cost of debt.

It is important to recognise the role of large shocks on the supply-side in the inflation we have seen since the pandemic. It would be wrong to present competition as a panacea. However, we have an important role to play:

• first, competition drives efficiency within businesses, and puts pressure on price
• second, we need to ensure businesses do not take advantage of cost-of-living pressures for their own benefit, either through collusion or unfair trading practices thereby disadvantaging consumers

Focusing on areas of essential spend

Pressure on household budgets is an issue we’ve considered in our prioritisation. The CMA will continue this year to have a particular focus on areas of essential spending and areas where people are under particular financial pressure.

You can see our strategy in action through our casework. There is our work on housing, I mentioned earlier and also:

• road fuel: following our market study into road fuel, consumers are going to have an easy way of knowing where to get the best price at the pump
• groceries: our consumer work on groceries – including the unit pricing rules - will help ensure that shoppers can compare the prices of different products and make choices that are right for them and our market study on infant formula will consider if there are problems in this market
• vets: we are considering how far the market for veterinary services, worth over £2 billion, is working for pet owners
• urgency claims: we’ve launched a wide-ranging programme of work to tackle misleading online sales using things such as countdown timers and other urgency claims, which may place unfair pressure on people to complete their purchases quickly

Value of advocacy

Our work on road fuels and groceries demonstrates the value of using advocacy to government – one of our tools - to deliver positive outcomes.

We made recommendations in the summer that government reform the unit pricing legislation. The government set out its proposed reforms in January, to help people access information that is easier to compare and is more meaningful when shopping for groceries.

Similarly on road fuels, we welcome the government’s recent decision to give new powers to the CMA to monitor fuel prices, following our recommendation that a fuel monitor is needed to hold industry to account.

Acting in areas of public concern

In each of these cases, we are acting in areas where the functioning of markets is particularly visible to consumers.

This is perhaps a larger topic for another speech, but I want to reflect that aside from the positive impacts of these cases, there can be a wider value in this kind of work. Namely, the value of the CMA helping to build public confidence in markets, and demonstrating that where markets are not functioning well, or businesses are engaged in unfair practices, they are answerable to an authority acting in the public interest.

Area 2: Labour markets

Secondly, labour markets. Our new Microeconomics Unit (based in Darlington) underpins the CMA’s role in supporting innovation, productivity and growth across the UK economy. The Unit is an independent, open-access, collaborative centre of microeconomic research expertise for government as a whole. It conducts analysis, and has expertise on, competition, consumer rights, innovation, productivity, and supply-side reforms. Some of its findings may be of direct relevance to the CMA’s wider work. Some will be of more significance to wider policy development.

In January, the Microeconomics Unit published its first major research report, competition in labour markets. The report underlines the benefits of well-functioning labour markets, in which firms are more likely to hire enough workers to operate as efficiently as possible and those workers can see higher wages. It highlights the prevalence of non-compete clauses in employment contracts which, though not generally a matter for competition law enforcement, is relevant to wider efforts to boost competition across the economy. Last year, the government announced that it intends to legislate to limit the length of non-compete clauses to 3 months. The evidence we presented in our report supports this direction of travel.

I want to talk primarily about the application of competition law to labour markets.

Enforcement in labour markets

Firms compete in their purchase of inputs, which includes labour. Competition authorities should therefore naturally take an interest in the health of competition in labour markets. That is why we published advice to employers last year on how to avoid competition law breaches in relation to labour markets. That advice identified 3 main potential infringements:

• wage fixing agreements: where firms agree to fix the wages they pay their workers, or other employee benefits. This could include setting caps on pay
• no-poaching agreements: where firms agree not to approach or hire each other’s employees, or not to do so without the other employer’s consent
• information sharing: where firms exchange competitively sensitive information about terms and conditions offered to employees

The CMA’s current portfolio of ongoing antitrust cases reflects our commitment to taking action in this area:

• we have opened 2 Competition Act investigations into suspected anti-competitive conduct relating to the rates for workers in the broadcasting sector
• in January, we extended our existing investigation into suspected anticompetitive conduct in relation to fragrances and fragrance ingredients to cover suspected no-poaching arrangements in the consumer fragrances industry

Area 3: Environmental sustainability

Moving on to the third area – environmental sustainability. Competition and consumer authorities have an important role to play as part of a wider strategy to help accelerate the UK’s transition to a net zero economy and help the economy grow sustainably.

There are 3 ways we can contribute using different tools at our disposal:

• first, we can assist consumers to make informed choices about the environmental impact of the goods and services they use. For example, we have found that people looking to buy ‘green home’ heating technologies can face difficulties, including potentially misleading claims about green heating and insulation products. Among other measures, we have taken targeted action by launching an investigation into Worcester Bosch in relation to potentially misleading green claims about the use of hydrogen in its boilers
• second, we can help markets for environmentally sustainable products or services develop in ways favourable to competition and consumers. That is why we conducted a market study into electric vehicle charging, which outlined how to promote strong competition, and encourage more investment in EV charging infrastructure across the UK
• third, we can ensure that competition law is not an unnecessary barrier for businesses pursuing environmental sustainability initiatives. We have issued our Green Agreements Guidance which provides greater clarity about how businesses can collaborate on environmental sustainability goals, whilst complying with competition law. We are operating an ‘open-door’ policy, where businesses can approach the CMA for informal guidance on these matters and just before Christmas, we published our first response to such a request - guidance on an initiative by the Fairtrade Foundation which aims to enhance sustainability and resilience in food supply chains

Area 4: Cartels and mergers

Some of our powers address matters that are so fundamental to consumer interests, so important to fair dealing businesses and so critical to a well-functioning economy, that we will always consider taking action where there are potential concerns. So it is with cartels and mergers.

Since the end of the pandemic, we have restarted our use of unannounced inspections as part of our efforts to detect and take enforcement action against covert anticompetitive practices.

I have referred to our investigation into fragrances and fragrance ingredients.

In October, we launched an investigation into suspected anti-competitive conduct in the supply of chemicals for use in the construction industry. Products I expect few of you have purchased yourselves, but essential inputs to infrastructure and services on which we - and our economy - rely.

Last year, we issued fines totalling almost £60m, after finding 10 suppliers of demolition and asbestos services had engaged in bid-rigging. We secured the disqualification of 4 directors as part of this investigation.

These may not be direct to consumer markets. But where competition is restricted higher in the supply chain, consumers ultimately bear the price and the effect on the growth and productivity of our economy is very real.

And on mergers, the impact of an anti-competitive merger is such that it must be addressed regardless of the sector of the economy affected though, in fact, many of the mergers that we review do reflect our broader priorities, such as promoting competition in digital markets or in markets which impact the cost of living.

This is an area of the CMA’s work which naturally attracts interest and discussion. Particularly, in this post-Brexit world where the CMA is on the world stage contributing to deciding the outcomes of large, international transactions. Where a merger satisfies the statutory test for investigation at phase 1 or phase 2 we are obliged to consider it. And we do so with the same independence, objectivity, and rigour as always, notwithstanding that the volume may have been turned up somewhat in the background.

As you will know we have been consulting on reforms to the phase 2 mergers process and we shall be setting out our new procedures in the coming months.

Conclusion

In conclusion, structuring our strategy around the outcomes we want to achieve, and keeping those front and centre of our decisions, helps us to utilise our powers more effectively, and deliver more successfully for people, businesses and the wider economy.