David Currie speaks about the CMA and infrastructure investment

Speech given by CMA Chairman David Currie at the European Policy Forum Infrastructure Forum's 2014 policy summit.

David Currie


It is a great pleasure and privilege to be here tonight. The European Policy Forum, led by Christopher Tugendhat and by Graham Mather, exerts a very considerable influence on UK and European policy-making, and an influence very much for the good. This Infrastructure Forum, led by Richard Threlfall, is an excellent example of its work, gathering together key players, both business and government, to discuss how to make UK infrastructure fit for the 21st century. This is a vital issue, for good infrastructure is key to economic performance and growth.

Reforms to the CMA

Let me start by saying a word about the Competition and Markets Authority. 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 and the Competition Commission 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 the more flexible and efficient allocation of 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. Now that we are up and running, our job is to realise those benefits, and realise them in spades.

Our primary duty reads as follows: ‘The CMA must seek to promote competition, both within and outside the United Kingdom, 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 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 around the world; nor is it some imperialist throw-back. But what it does do is give full legitimacy to the international dimension of our work. And this primary duty underpins our overall mission to make markets work well in the interests of consumers, businesses and the economy.

Because our remit is economy-wide, we have oversight of the key infrastructure markets that you are considering at this Forum. Some of those markets also have a sector regulator, but some do not. The issue of infrastructure was brought home to me on Tuesday as I travelled to Harrogate for the Trading Standards annual conference – they are a key partner in our consumer enforcement work. An excellent train journey from London to Leeds and back from York; but a train journey from Leeds to Harrogate and back to York which was of a much lower standard.

Certainty within business regimes

For investors in infrastructure with long-term returns, certainty is a key factor. Now, of course, no business can ever be certain about the future: hence the furore over the Financial Reporting Council’s (FRC) proposed guidelines about going concern statements. The nature of business is that it is dynamic, responding to new opportunities, new technology and changing consumer behaviour. But what investors want to avoid is unnecessary uncertainty, and particularly unpredictable political interventions. Some point to certain interventions by our predecessor, the Competition Commission as a source of such uncertainty: for example, the decision to require BAA to divest of Gatwick, Stansted, and Edinburgh or Glasgow airports; and the reduction in the cost of capital in the case of Northern Ireland Electricity, which has fed through to the cost of capital allowed in other price-regulated sectors. Though undoubtedly justified in terms of wider benefits, these decisions clearly impacted on the returns to infrastructure investors. And the Competition and Markets Authority, like its predecessor, has powers under the Enterprise Act 2002 that are almost unique around the world in allowing us, following a thorough phase 2 market inquiry, to impose remedies in respect of an entire market if we find that a market is working poorly in serving consumers.

However, I would suggest that the UK regime is less susceptible to such uncertainty than other regimes around the world. Because of its importance for consumers, business and the economy, infrastructure is inevitably in the political domain all around the world, and therefore subject to political uncertainty. The question is how best to insulate it from that uncertainty, so as to enable an appropriately low cost of capital and a willing flow of new investment. I want to argue that the UK regime works well in that respect.

First, a few facts about how the regime works. Under powers given by the Enterprise Act 2002, the CMA can initiate a market study, which may lead to a market investigation reference (or MIR) to a phase 2 inquiry. Since the Enterprise Act passed into law, there have been 16 MIRs. Of these, divestments were ordered once (the BAA case), and are proposed and currently under appeal in 2 (aggregates and private healthcare). The phase 2 market investigation used to take 2 years; now the CMA is required to complete it in 18 months.

The CMA’s market investigation process

The market investigation process is well-established and well understood. The investigation is directed, and decisions made, by a group of (generally 5) expert panel members who have played no role in the decision to make the reference (ie to launch the investigation), so removing the risk of confirmation bias; drawn from a panel of eminent and experienced industry and competition experts with a wide range of relevant skills and backgrounds; independent of government, other public bodies and regulators, independent of any particular interest and of the CMA executive. They are supported by skilled professional staff with expertise in areas such as law, economics, accountancy, corporate finance, project management and effective regulatory administration.

The investigations follow well-defined procedures and analytical approaches that are set out in published guidance. If the group finds an adverse effect on competition, it must consult on this and on proposed remedies. In the process, they publish details of the work, including substantive reasoned reports explaining provisional findings, proposed remedies and final conclusions. The parties enjoy frequent interaction with the staff and at least 2 meetings with the decision-making panel. There is a procedural officer who, among other things, will adjudicate in disputes which sometimes arise about the publication of confidential information. Any remedies have to be shown to be proportionate and to be the least intrusive means of addressing the adverse effect on competition. The approach to divestment is set out in guidance and the time period for such divestments is sensitive to market conditions, so that the vendor is not placed at unnecessary disadvantage. And all decisions, including the initial reference that launched the investigation, the decision to find an adverse effect on competition, and the decision to impose remedies, can be appealed to the independent Competition Appeal Tribunal.

What I have just described is a very strong set of safeguards that makes the process as predictable and fair as possible. And the regime is respected: government does not try to interfere. Parliament did not seek to tamper with it during the passage of the Enterprise and Regulatory Reform Act, which established the CMA, when there was ample opportunity to debate changes. And the parties respect it, frequently saying that the process was exemplary and fair even when they do not like the end result. That is why several of the large energy companies were arguing in favour of the reference last week by Ofgem of the energy market to the CMA for a market investigation.

The CMA’s collaboration with sector regulators

In those infrastructure markets with sector regulators, a concern sometimes voiced is that there is inconsistency between the way in which competition and sector specific powers are exercised, and inconsistencies across regulated sectors which impact on those providers spanning different sectors. I think those criticisms have been somewhat overdone. But they have been addressed in the creation of the CMA by requiring us to play a more prominent coordinating role in the application of competition powers in these sectors; and requiring the sector regulators, before using sector-specific regulatory powers, to consider first whether it would be more appropriate to proceed under competition law. Hence the creation of the UK Competition Network which will work to achieve this consistency and thereby reduce uncertainty.


So I hope I have persuaded you that the UK competition regime is well-structured to give the best possible regime for infrastructure investment in the UK. Investors in monopolised and oligopolistic markets do have to consider how to manage within the regime and be wary that their investments are not based on the prospect of future monopoly profits, which may be the target of intervention; but are rather profits earned in a competitive open business environment. And we need to ensure that investment in a way consistent with maintaining an open and competitive market. After all, as well as certainty, it is economic growth which encourages investment, and effective competition is critical to generating growth, acting as a spur to efficiency and a stimulus to innovation. And that is the challenge across the piece, whether in next generation telecoms infrastructure, transport, energy, water and the others considered at this forum.

What you can be confident of is that the CMA is led and staffed by people who understand business and in carrying out its work will be sensitive to business and investment needs. And I believe and have said elsewhere that the recent UK reforms that created the CMA will be seen as a significant enhancement of the regime, building on those created by the Enterprise Act and the Competition Act before it.

Published 11 July 2014