An excellent opportunity to take stock and listen
I would like to thank the National Audit Office (NAO) for the opportunity to reflect together on the functioning of the UK’s competition regime following the publication of the NAO report earlier this year.
This is an excellent opportunity for us to take stock and to listen to your views today on the Competition and Markets Authority’s (CMA) performance and prospects.
As it happens, today also turns out to mark my ‘last day in the office’ at the CMA, so I hope you will forgive me for offering some personal views on the development of the UK competition regime over the past few years, particularly with regard to the 2 main topics of the seminar, namely the enforcement of competition law and how the CMA carries out market investigations.
I will do so briefly, as I know that the CMA is well represented on the line-up. Our Executive Director for Enforcement, Michael Grenfell, is also speaking; Roger Witcomb, the Chair of the energy market investigation, will chair the second session; and then Andrea Coscelli, who will take on the role of interim Chief Executive as of next Monday, will make a few observations on the CMA’s future plans in the closing session.
Increasing the pace, scale and impact of enforcement
In its report, the NAO found that we have made significant progress in improving how the competition regime works and, in line with our own ambition, highlighted the need to increase our civil competition enforcement case flow.
The NAO’s report also highlighted a lack of sufficient awareness of the competition rules, in particular among smaller or medium-sized enterprises, as evidenced in the CMA’s 2014 survey.
We see it as of fundamental importance that consumers should be protected from illegal anti-competitive practices. The NAO’s recommendations are very much in line with the ambition we had already set ourselves when we established the CMA, most recently reaffirmed in our 2016/17 Annual Plan, to achieve a further step up in the pace, scale and impact of our enforcement of competition and consumer law, complemented by support to businesses to understand and comply with it.
Indeed I hope you will all have recognised the step change in recent months in terms of output, impact and pace of CMA cases, which the competition media has reported.
In terms of our output, we have completed 5 infringements in the last year, achieved 2 guilty pleas in criminal cases, and opened 13 new cases in the last 9 months – more than in any comparable period over the last decade.
Regarding the impact we are having, we have imposed large fines on ‘household name’ companies, including the £45 million fine in our pay-for-delay case in the pharmaceutical sector (now subject to appeal). But we are also making a difference across many other sectors, achieving over £10 in consumer welfare for every £1 we spend.
Alongside enforcing the law in markets across the UK, we have proactively and vigorously followed through with targeted communications to businesses working in these markets – estate and lettings agents, medical professionals, kitchen and bathroom suppliers – to help those working in those markets and beyond to understand the law, know how to avoid breaking it themselves and, if they see others engaging in anti-competitive practices, know how to report it to us. Before the NAO report we had published and promoted a wide range of materials, including a suite of information and tools aimed directly at small businesses and developed with the Federation of Small Businesses. Since the report we have published user-friendly materials on resale price maintenance and continue to make good use of warning and advisory letters. This twin-track of tough and rigorous enforcement alongside accessible and relevant guidance to businesses is both effective and well-received, and will remain central to our strategy to promote competitive markets across the UK.
We are increasing the pace of our work. We’ve managed to reach Statements of Objections in 6 to 12 months and issue infringement decisions in 12 to 18 months, albeit with the pay-for-delay case as the notable exception. This is indeed good progress but we are the first to acknowledge, as we did in our response to BIS’s Better Markets Bill consultation, that we have more to do.
I will leave it to Michael to cover the progress we have made in more detail in the first session. But I will remind you that this is exactly the strategy we set out with 3 years ago and we have stuck to it and really focused attention and resources on this area and that is why we are getting these improved results.
And our ambition goes further. We want to develop a really strong competition culture in this country, through our active enforcement and our markets programme and our public advocacy. This will both reflect our growing success with enforcement work and also reinforce it, through better intelligence, more extensive compliance, and – where the case justifies it – criminal convictions.
The process, expectations and inherent complexities of market investigations
We have reached significant milestones in each of our main market investigations. I will focus on the energy market investigation as this is today’s topic for the second session.
I will refrain from making detailed comments on the substance of our very recently published final report, which has been the work of the independent panel group led by Roger Witcomb.
I will, however, make 3 observations on the nature of the process, the expectations we are confronted with and the inherent complexities of this type of work.
First, while this may seem obvious to everyone in this room, the nature of the process is of course evidence-based. And we are not in the business of chasing headlines: we want genuine reforms that will stand the test of time, which meet the needs of the market and which have a real prospect of making the market work better for consumers, rather than eye-catching initiatives that make a momentary splash, but don’t stand up to further examination. We carry out our market investigations expertly and independently, in pursuit of a thorough and objective diagnosis of features of the market that are not working well. The process must rightly be fair and proportionate and is subject to a high level of judicial scrutiny.
Secondly, in terms of expectations, it is important to perform a reality check and recognise what we can and cannot aim to accomplish. In energy, we are talking about a large-scale market, worth over £43 billion per annum, and with hundreds of commercial actors, millions of households and businesses as customers, and hundreds of millions of transactions. It is a vast and multi-dimensional market, of fundamental importance to consumers, businesses and the UK economy.
It is also a market that has evolved a great deal since the days of central control by CEGB and it continues to do so, not least under the intense pressure of climate change goals. And it is a market shaped by economic regulation as well as policy – neither of which stands still.
At the risk of stating the obvious – the CMA is no ‘deus ex machina’ that can resolve at a stroke each and every issue all the various economic actors encounter. Instead we can come up with a programme of reforms that in combination offers a good prospect of remediating the main observable flaws restricting competition in and for the market. That is not the same as fixing every issue. Nor keeping everyone happy.
This is closely linked to my third observation, on complexity. I am not referring to complexities of this market in terms of its special properties and language such as Values of Lost Load, and CfDs, triads and trilemmas and what have you – though there is plenty of that.
What I mean is that the problems we have found in this market are interrelated: we observed some barriers to entry and expansion, large players with high combined market shares, and a significant difference between the prices of ‘acquisition tariffs’ and ‘default tariffs’. However, with the number, share, and competitive impact of independent suppliers growing this might not have been in and of itself so very problematic, if this market structure had not also been coupled with under-engaged users.
We have also found that some aspects of the regulatory framework – and its governance – have made the problems in this already complex environment even worse. To put it simply: there is no one silver bullet capable of solving problems of this complexity that are persistent and have evolved over a significant period of time. It requires a combined programme, and this will take time.
And that points to the fact that the reform programme will be a collaborative enterprise involving government, the regulator, firms and customers and their representatives, with a great deal of expert advice from lawyers, economists, engineers and other professionals.
So the outcome of our efforts in the energy market investigation over the past two years is not merely a final report; it’s a programme, a call to action from all those I just mentioned. And it’s not all – not even mainly – about the CMA; we are just a key catalyst for this transformation, towards a much smarter, more efficient, more innovative and more trusted market for energy.
And I could say much the same about our work in retail banking and the rest of our markets programme.
My hope – and my expectation – is that in 4 to 5 years’ time when the CMA is here again with the NAO, we will see that these big markets have moved to a completely different and superior operation, thanks to the catalytic work of the CMA in these market investigations.
On a personal level, let me conclude by expressing what I hope the CMA will stand for going forward.
My vision of the CMA is that it continues to be open, engaged, reformist and confident. We must neither go into a shell nor up an ivory tower, nor avoid the company of critics and opponents. We have a duty to listen and to learn, but also to explain and promote our work, how we do it and why it matters.
I am sure, looking at Andrea and Michael and the many other talented senior leaders the agency has in its ranks, that the CMA will continue to listen to the NAO and to learn from these exchanges and the feedback from the external experts represented by the distinguished audience and participants here today.
My ask of you is that you help to make the CMA – our public authority for upholding competition – a long-lasting success.