The Penrose Report – the new normal in UK competition policy?

On 16 February 2021, the Penrose Report – Power to the People (the “Report“) was published by John Penrose MP who, back in September 2020, had been requested by the government to carry out an independent review of the UK competition policy. The aim of the Report is to explore the ways in which the UK can achieve an independent trade policy after leaving the European Union and its custom union, which meant adhering to the block’s trade policy, and how the country could achieve economic recovery from COVID-19.

The competition and consumer regime in the UK has generally been well-regarded. It is considered by the government as an essential component in driving innovation and enabling growth for new market entrants. Unfortunately, as with any other countries, the pandemic has greatly affected the market in the UK and improvements must be made to adapt to the challenges posed by the current climate and the new ongoing market conditions.

POST-BREXIT POSSIBILITIES 

As the process of leaving the European Union concludes, the UK regains its autonomy in regulating competition and consumer laws. The Report recognises enormous opportunities for the country to cut regulatory cost and to replace as many of the current regulations and rules as possible with lower-cost alternatives. It also recognises the fact that the UK is in an excellent position where it can take inspiration from the EU rules, and reform them into a new, faster, more digital and automatically transparent process that does not put entrepreneurial firms at a disadvantage because of their lack of resource and experience in implementing regulatory changes quickly. Many of these firms find it difficult to afford expert advice and thus, are unable to partake in such processes.

CURRENT CHALLENGES

The Report identifies a number of challenges that the UK is facing in relation to the country’s competition and consumer regime. The main challenges this article will explore are:

  • the existing regulatory burden;
  • the misdistribution of power;
  • the current challenges faced by consumers;
  • state-aid and political intervention; and
  • the powers available to the relevant institutions in the context of merger and case management.

OVERCOMING REGULATORY BURDEN

One of the greatest challenges the UK competition policy faces is regulatory cost. While the country has spent many years trying to cut this cost, recently, not only has the UK stopped making progress, but it has also gone backwards. As a result, regulatory burden increases, progressing much too slowly in a progressively digitalised and fast-paced environment.

To resolve this, the Report put forwards the following proposals:

  • it urges the Competition and Markets Authority (“CMA”) to cut down the cost and complexity around the regulations surrounding competition law, making it easier and more assessable for companies of all sizes to comply with;
  • it suggests putting in place a new Competition Act, in order to update and modernise the existing institutions for an increasingly computerised economy.

SHIFTING THE POWER DYNAMIC

The goal to shift the power back from businesses to consumers runs throughout the Report and emphasises its importance. The Report is adamant that by shifting the dominance from businesses and giving consumers more power and choice, it encourages firms and companies to compete harder to offer their targeted audience better, cheaper and greener services and products. Additionally, this shift would also offer long term guarantees of job security for UK workers as businesses continue to strive to deliver optimal performance and cost-effective results. The overarching benefit of this power shift would create a fairer and more just system, offering consumers a better deal for their money and, in turn, ensuring a higher standard of living as companies focus on offering better quality services and products.

RECONCILING CONSUMERS CHALLENGES

Consumer protection laws are essential in creating a legal framework to safeguard consumers from unfair trading and providing foundations for their rights. While most of the rules do not need to be changed, the Report identifies three main gaps in the UK’s legal framework that would still allow consumers to be taken advantage of by businesses post-Brexit:

  • subscription traps which snare customers into long and expensive deals that are difficult to cancel after an initial free trial;
  • the small print in long and complicated contracts that contains rip-off clauses that consumers do not necessarily read; and
  • methods that would influence consumers’ behaviour, including pre-ticked checkboxes for add-ons or time clock for offers to create a sense of urgency around price and availability.

To tackle the above, the Report proposes that the CMA should undertake a market investigation to assess ways to identify these methods being used and what rules should be put in place to protect consumers from being misguided in an increasingly digitalised world.

MINIMISING STATE INTERVENTION

In order to shift the power back to the consumer, the Report states that bureaucratic and political intervention should be kept to a minimum. Rather than spending their time lobbying their legislators, businesses should redirect their focus on maximizing their customers’ satisfaction. The more intervention from the state, the more the firms will take their focus away from their customers.

The Report also opposes state subsidies. It is of the strong opinion that subsidies distort competition, leading to investment being directed to less productive parts of the market, rather than where it would be most useful. As such, not only would it be counterproductive, but it would also lead to prices increasing. In fact, the most competitive and productive firms are not able to stand out from their less successful but subsidised rivals.

The Report also suggests that subsidies reverse the benefits of the politically independent regulation, making the country less attractive for investment in growth and the job market. This would ultimately lead to companies increasing their cost to provide higher returns for their investors and compromising on their productivity.

MERGERS AND THE INSTITUTIONS’ POWERS

The CMA is responsible for reviewing every merger relevant under competition law, before the businesses involved are allowed to proceed with the merge. There are two stages to this process. In the first phase, the CMA decides whether the merger has a realistic prospect of substantially lessening competition (“SLC”); in the second phase, the CMA investigates and decides whether the merger has or will result in an SLC.

However, as it currently stands, the CMA and firms cannot legally reach an agreement before the end of the first phase and the second phase mergers investigations. This results in an unnecessary delay in the process.

Given that the CMA is the responsible body for conducting such investigation and review, the Report strongly believes that the CMA should have the power to accept legally-binding undertakings at any stage of the merger reviews, market investigations or studies, in order to overcome the currently slow, expensive and unproductive process.

The Report also puts forward the proposal that the CMA and the Competition Appeal Tribunal (“CAT”) should refine their case managing process, with an aim to resolve more complex cases within a timeframe of no longer than a number of weeks or maximum, a number of months. These institutions are also encouraged to take actions against companies or firms which collude or abuse their dominant position in the market, and demand changes to mergers that would put customers at a disadvantage.

Where the underlying rules are not working properly in certain industries, they should also be updated without delay. To achieve this, the CMA is asked to publish an annual report that measures and analyses the progress and problems in the competition and consumer laws across all sectors of the economy all over the country. The CMA is also encouraged to hold regular monthly meetings with consumer complaints organisations, in order to gather intelligence on the parts of the country or sectors of the economy that are making progress or causing concerns.

CONCLUSION

The Report confers an optimistic yet realistic analysis of the current competition and consumer policies in the UK. Many changes put forward would result in an increase of the CMA’s power. In the current climate, it is believed that there are a great deal of opportunities for the UK to thrive in its competition regime after leaving the EU.

NEXT STEP

The Report contains only recommendations but the government is committed to considering its content and will decide as to whether to adopt any of them in due course.

To read the report, please click here.

For more information, and any guidance or advice on UK Competition law, Cleveland & Co External in-house counselTM, your specialist outsourced legal team, are here to help.

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