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A more nimble UK competition policy post-Brexit? Why we should continue to be sceptical

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John Penrose M.P.’s cry of Power to the People - the rather striking title of his recent review of competition policy occasioned by Brexit - does not suggest that Brexit in itself will provide the sort of “opportunities” that politicians like to talk about. More pertinently, it rather confirms long standing doubts about whether key branches of the government machine are, have been or will, post-Brexit, be really committed to a get behind a  market economy where it really counts - namely where market based solutions are difficult and unpopular. 

Is the current system fairly balanced?

One of the main problems of competition law from the enforcement authority’s perspective is that the procedures can take years to conclude. Defendants (at least the well resourced ones) are able to spin out the cases brought by the Competition and Markets Authority (CMA) and the alphabet soup of UK sectoral regulators by employing extensive  rights of defence and time consuming appeals.

Such rights of defence derive from the fact that competition law proceedings (which can give rise to serious financial and reputational consequences) are deemed analogous to criminal law proceedings and therefore attract the application of Human rights law. This undoubtedly impedes the efficient disposal of cases and means that in fast moving markets (but not just them) small companies can go to the wall before relief arrives. Enforcement authorities don’t like this sort of outcome as it makes them look ridiculous.

CMA: investigator, prosecutor and judge

However, Human rights based legal defences will continue to be available post Brexit - with all that implies for the speedy disposition of cases. An aggravating factor that makes it hard to dispense with the availability of these defences is the fact that the CMA unites the roles of investigator, prosecutor and judge with limited rights of appeal or review.

A well-documented proposed solution to this problem is to introduce a prosecutorial system which would, it is argued, make the CMA’s competition law one stop procedures less vulnerable to attack under the fair trial case law arising from Article 6 of the Human Rights Act. Penrose is not at all convinced by the solution but does not rule it out; in a classic fudge, the idea will be looked at again by a Task Force set up to examine law how competition law procedures can be accelerated.

A special regime for Big Tech

This Task Force process is likely to get snarled up in the CMA’s proposal to set up a special regime to deal with Big Tech platforms where the CMA has got itself in the position of seeking more powers from Parliament (reducing some rights of defence) having never exercised any of its existing ones against the likes of Facebook and Google so far (it has just realised this optical difficulty and has opened one investigation). In these circumstances it is hard to see how there will be any swift solutions to a problem that was not created by EU membership anyway.

Useful reforms

The review does actually promote a number of other ideas that might bear fruit sooner. Some are  good (simplifying the truly Byzantine appeals system); some less so - such as the suggestion of setting up competition law county courts - a modish nod in favour of localism - which looks more like a way of getting rid of cases that are not deemed to merit attention in  London.   

The main thrust of the Penrose review however is that competition should be put centre stage with the CMA becoming the micro economic sibling to the Bank of England’s macro economic big brother. This would indeed be a big change; however the record shows that the CMA and the sectoral regulators are not really even in charge in their own house.

Competition policy - more bridesmaid than bride

The history of governments of both persuasions is one where competition policy is relegated in favour of other policy priorities when the going gets tough. Competition policy is generally the bridesmaid and not the bride. One thinks in this connection of the Lloyds Bank HBOS merger forced through by Gordon Brown on “prudential” grounds without a formal investigation by the competition authorities.

Only very recently, Hancock announced that the unpopular Lansley reforms to the Health service which were designed to introduce some competition into this market were to be abandoned in favour of central monopoly control with the CMA stripped of its powers over mergers and other market matters with no obvious consultation having taken place. The retail banking and health markets could scarcely be more important economically - and yet the chill winds of competition will not be blowing so much here because of other policy priorities. 

At the same time, and much less defensibly because it is a direct intrusion into the CMA’s casework (though within the government’s legal powers) the government is moving towards replacing the CMA’s proposed mandatory joint Audit Remedy to deal with the notorious and damaging  Big Four audit oligopoly with something much more tolerable for the Big Four.

The new remedy is a ‘managed shared audit’; a process which is of course to be managed by none other than one of the Big Four. Quite how this assists challenger firms as effectively as the CMA’s own proposal that arose out of an exhaustive investigation that concluded way back in 2018 is entirely unclear. Once again this is a massive market in which the chill winds of competition are to be tempered by something a little more soothing.

If Penrose’s rallying cry invites scepticism against this background, what can be hoped for particularly as COVID and Brexit ravage the corporate landscape?  The review contains nothing substantive to interest small business; a more generous de minimis rule than the EU’s or a UK notification system that would mean that companies would not have to spend money on advisors for self assessment of their agreements would both be welcome consequences of Brexit as the current rules are the EU’s and they are of questionable merit .Perhaps the Task Force will address these matters.  

Competition policy at the “heart of government”??

What one might think could profitably happen under the current system is a ministerial steer to the CMA to refrain from taking quite as many cases as they have in recent years against small and medium sized companies( such as estate agents in Hampshire, model agencies in London and bus companies outside the capital). But this is the nub of the problem and like the Human rights problem it remains unaffected by Brexit. Why should ministers ever be involved at all in competition cases when the entire thrust of the last set of painfully gestated competition law reforms was designed to get their fingers out of the cookie jar?

Before competition is at the “heart of government” (a deathly phrase) and Power to the People is made available as Penrose is advocating, the UK has to get its house in order in a more radical way than he appears to recognise. In fact, EU membership was never really an obstacle to a more credible domestic regime and to be fair he does not actually claim that it was.   

Stephen Hornsby

Stephen Hornsby is one of the most experienced EU and competition lawyers still practising in the UK. He has acted for clients ranging from Fortune 100 companies to individuals, in contentious and regulatory matters in the High Court, before the ECJ in Luxembourg and in front of the OFT, Ofcom, the European Commission and the Competition Appeal Tribunal.

Goodman Derrick LLP - a London law firm focused on delivering an exceptional service to ambitious businesses and entrepreneurs.

More information

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.