Speech

David Currie speaks about competition policy in regulated markets

Speech given by CMA Chairman David Currie at the annual Chatham House conference.

David Currie

Introduction

It is a great privilege to be asked to give the closing address at this Chatham House conference. This annual conference has established itself as a must-hold date in the competition diary, as the distinguished array of speakers and today’s high level audience attest. We have covered a huge range of issues today, only a few of which I have time to touch on in my short remarks. This conference comes just after a fairly major reform of the UK competition and regulation regime, which came into force in April when the new Competition and Markets Authority (CMA) took its powers. I hope that you will forgive me, therefore, if I start parochially by talking about those UK changes, which may be of wider international interest, but I will conclude by looking internationally.

Reforms to the UK competition and regulation regime

The most prominent part of the reforms introduced by the Enterprise and Regulatory Reform Act 2013 was the replacement of the separate Office of Fair Trading (OFT) and the Competition Commission (CC) by a single Competition and Markets Authority. This meant an inevitable long period of uncertainty for the staff of the 2 bodies, which could easily have impacted on the flow of work. It attests to the professionalism of the staff of both bodies that this did not happen: despite a considerable burden of work planning and implementing the transition, business as usual continued. We have attracted a very strong international board and a talented and dedicated executive team, drawn in large part though not exclusively from the legacy agencies. Putting the Phase 1 and Phase 2 activities under one roof while maintaining the independence of the 2 phases and avoiding confirmation bias gives us a complex, but workable, governance structure. The benefits include a more flexible and efficient allocation of scarce resources, more timely processes (as required by the new legislation), greater opportunities for staff in career development, and a more powerful single advocate for competition both in the UK and internationally.

Concurrency regime

An important part of the new legislation, directly relevant to this conference, is the enhanced concurrency regime with the UK sector regulators. This reflected concerns about the relative paucity of competition cases in the regulated sectors. These sectors account in total for some 25% of the economy. They are also typically characterised by monopolistic or oligopolistic market structures. This might suggest the need for more, rather than less, competition enforcement than in other parts of the economy – hence the concern.

It is also clear that, despite having concurrent powers, the OFT was reluctant to get drawn into consideration of the regulated sectors. In part, this was a matter of resource: the OFT and CC budget was only some 7% of that of the sector regulators. But with some of the sector regulators having relatively little experience of competition law, there is a strong case for the competition authorities to be involved in the regulated sectors. That was part of the rationale for the changes in the concurrency regime introduced by the Enterprise and Regulatory Reform Act.

The changes introduced by this Act, in respect of concurrent application of competition law by the CMA and the sector regulators, are fivefold.

  • First the Act places on the sector regulators (with the exception of the health regulator, Monitor) a strengthened obligation to give primacy to the use of their competition enforcement powers ahead of their regulatory enforcement powers; that is, to use their sector regulatory powers only after considering whether it would be more appropriate to use their powers under the competition law prohibitions (ie the prohibitions on anti-competitive agreements and on abuse of dominance).
  • Second, the CMA is given an ultimate lead role to determine the allocation of cases under the competition law prohibitions as between itself and the sector regulators, if this cannot be agreed.
  • Third, the CMA is required to publish, in consultation with the regulators, an ‘annual concurrency report’ describing the effectiveness of the concurrency regime and the application of competition powers in the regulated sectors.
  • Fourth, in certain circumstances the CMA has the power to take over from a sector regulator a competition case and advance it itself.
  • Finally, the Secretary of State can remove competition powers (in respect of either or both of the competition law prohibitions and the UK markets regime) from the sector regulators (again with the exception of Monitor).

This represents a fairly major revamp and strengthening of the concurrency regime. Building on these legislative changes, we moved quickly to put in place mechanisms to deliver enhanced coordination of competition policy in the regulated sectors. We have commitment to the new UK Competition Network, we have an agreed work programme for the coming year, including detailed memorandums of understanding (MoUs) with each of the sector regulators, establishing an information-sharing platform, and the publication of a baseline annual concurrency report in April of this year.

The CMA’s collaboration with regulators

All of this is being done in a spirit of cooperation, and this is the best way forward. In collaboration, the regulators bring their deep knowledge of the sector; while the CMA brings the competition experience that the regulators, particularly the smaller ones, may lack, as well the consistency of approach across sectors, both regulated and unregulated. Given the resourcing disparity noted above, collaboration is the only realistic way forward if we are to have good portfolio of competition cases in the regulated sectors. And the more effective and consistent application of competition law should help to reduce regulatory uncertainty.

An early example of this cooperation was the referral last week by Ofgem of the UK energy sector to a Phase 2 market inquiry, following a three-way joint study by Ofgem, the OFT and the nascent CMA.

Of course, other countries have taken a different institutional approach and have chosen to merge sector regulators with the competition authority. That has not been the UK government’s approach, and as someone who has experience of both sector regulation and competition I believe they were right: I think that merger would have given to one agency too great a range and power. That is particularly the case in the UK context, since the CMA inherits certain of the OFT’s consumer duties and powers, and we see considerable advantage to being a combined competition and consumer agency. But what it means is that we have an interesting experiment, and no doubt we will examine at future Chatham House conferences which approach has proved more successful.

The CMA’s international work

That takes me to the international dimension of the CMA’s work. Our predecessor bodies took their international work very seriously, both cooperating with other agencies where appropriate, working through the international competition networks (ECN, ICN and OECD), and helping to build capacity in other, particularly new, agencies around the world.

The CMA will be equally committed to this international agenda. Indeed our primary duty in the new legislation reads as follows: ’The CMA must seek to promote competition, both within and outside the UK, for the benefit of consumers’. I was mildly surprised when I first read this by the ‘outside the UK’ and the plain ‘consumers’ rather than ‘UK consumers’, and surprised that the parliamentary scrutiny left this phrasing untouched. Of course, it doesn’t mean that the CMA will be muscling in on the work of other agencies represented in this room; nor is it some imperialist throw-back. But what it does do is give full legitimacy to all dimensions of our international work, and we will be keen to pursue those in cooperation with other agencies.

That international cooperation is crucial for the obvious reason that businesses operate internationally across national borders and jurisdictions, and it is important that competition law is applied as consistently as possible. Hence the criticality of the work of the ECN, ICN and OECD aimed at convergence of competition law and its applications and to establish international standards where possible. That has proved easier in some areas, such as cartels and mergers, than in others, such as unilateral conduct, though the recent ICN guidelines on predatory pricing represent an important step forward. Where convergence proves impossible to reach, then “informed divergence” (as John Fingleton, the former OFT Chief Executive, dubbed it) is the next best thing.

International cooperation in this area matters because it has wide ramifications. The empirical evidence is that effective competition is good for productivity, growth and innovation. That linkage is given even greater salience by the prospects of sluggish growth in many parts of the world because of the aftermath of the financial crisis and the overhang of debt. That is why a key strategic imperative for the CMA is to extend competition frontiers into newly emerging markets, notably online and public markets such as health and education. What we have been debating today matters for the well-being of our consumers and citizens. And that is why conferences of this calibre are so important in promoting the formal and informal linkages that will make that cooperation real. It is our ambition to be among the leading competition and consumer agencies in the world, so you can be sure that the CMA will be a very active participant and contributor on the international competition stage.

Published 7 July 2014