Speech to the Regulation Forum Chairs' Summit
A speech delivered by the Chair of the Competition and Markets Authority, Marcus Bokkerink.
It’s a pleasure to be speaking at the Regulators Forum, and in such magnificent surroundings here at the British Academy.
I’d like to talk today about how open, effective competition and targeted, effective regulation can together help to drive economic growth and productivity.
The UK’s weak economic performance is understandably the subject of much debate – for people, it is holding back living standards; for business, it is holding back demand; and for government, it is holding back tax revenues necessary to deliver high-quality public services.
And it’s often argued that regulation, and regulators, are part of the problem. That investment and innovation is held back by excessive intervention. That by virtue of their duties, or their culture, or their absence of political accountability, regulators are not meeting the moment. That they are not responding in the way they should to our economic circumstances.
Often, these points are made with broad brush strokes – in a way that rather lazily puts not only all the sector-specific regulators, but also other authorities in the UK’s economic landscape, such as the Competition and Markets Authority (CMA), into one big bucket.
Now, it is right to focus attention on how the regulatory regime can deliver stronger growth.
And all public bodies – the CMA included – need to ask, and be asked, no-nonsense questions about what each of us are doing to support growth.
But it is important that we do so clear-mindedly. If we start from misguided presumptions, with a simplistic one-size-fits all mindset – that all regulation is always by its nature harmful to innovation for example; or that competition can only be achieved through complete laissez-faire – then we will arrive at the wrong solutions.
To unpack this, I’d like to make 5 key points.
First, that open, competitive markets are vital to economic growth, by providing incentives for firms to invest and innovate to get ahead of their rivals. This point is generally accepted in principle, but the tangible implications are often overlooked, or undermined by vested interests, in practice.
Second, that keeping markets competitive isn’t the same thing as leaving them alone. Parliament has given the CMA a duty precisely to help create and protect the competitive conditions that foster innovation and growth, by giving it functions to prevent anti-competitive mergers, and to enforce competition and consumer protection law.
Third, not all markets are the same. Different markets have differing economics, bases of competition, and systemic impact. Some require additional measures – in effect, regulation – in order to create, unlock or substitute for competitive conditions that are otherwise lacking. It is important, in the search for growth-enhancing regulatory reforms, to distinguish measures that are pro-competitive and so pro-growth, from those that are not.
Fourth, that the institutional environment of an economy matters; and that the understandable instinct to impress greater political direction on regulators should not blind us to the benefits of long-term certainty and predictability that come from independence from short term political expediency and from lobbying by vested interests.
And finally, that the regulatory regime needs accountability commensurate with the powers it exercises over the economic lives of citizens and businesses. This is something the CMA wholeheartedly embraces, indeed actively encourages. Without accountability, we cannot command the trust and confidence necessary to use our functions and powers effectively.
Many of these points will no doubt be obvious to those in the room today. But in different ways, they are all being called into question – partly from our economic predicament, partly by the pace of technological change, and partly because, as will always be the case, what benefits the country as a whole over the long term can be specifically inconvenient to some, often powerful, vested interests in the short term.
Competitive markets are vital to economic growth
So let’s start with my first point, why open, effective competition is so important to economic growth.
The evidence is clear. When firms don’t face strong competition, they can take their customers, market share and profits for granted. They face no pressure to innovate; no incentive to operate more efficiently. High-productivity firms don’t drive out low-productivity ones. And we are all poorer as a result.
This is not just what the aggregate numbers that look at these relationships across the economy tell us. More tangibly, it’s patently true all around us. Just look at markets where competition is lacking, and markets where competition thrives. The benefits to growth of the latter are obvious.
Take airlines for instance. When the EU liberalised the air transport market in the early 2000s, it boosted competition: new airlines entered, fares fell, new services were introduced. Consumers benefited through lower fares and greater choice, and also the wider economy through greater connectivity and better capacity utilisation.
Take banking. The CMA’s open banking remedy has enabled customers of the large retail banks to share their data with trusted third parties. The result was a dramatic growth in the fintech sector, as startups emerged to provide new, innovative digital services to consumers and businesses, helping them get more out of their money. Again, this benefited customers – over 8 million of them. And it benefited the wider economy through new sources of value – estimated at £4bn a year and growing.
Do I need to mention telecoms. Those of my generation will remember the performance of BT as a state monopoly: 12-month waiting lists to be connected; appalling reliability. When it was opened up to competition in the 1980s – waiting lists ended, call failures fell from one in 25 to one in 200, benefiting not only customers directly but the wider economy though better-functioning infrastructure (footnote 1). It’s the same story in the US, where the FTC’s breakup of AT&T prompted not only fall in consumer prices, but a wave of innovation (footnote 2).
The same is true for other essential infrastructure, where firms in highly concentrated markets have failed to innovate, simply because they’ve faced no competitive pressure to do so. For example, the CMA recently concluded that the emergency services communications network was effectively being run as an unconstrained monopoly. This led to higher prices than we would expect were the market competitive, ultimately paid for by the taxpayer, but also – critically from a productivity and growth perspective – delays to the rollout of a new, better network, because the monopoly provider simply wasn’t incentivised to support the transition.
Protecting and promoting effective competition
So we are clear that competitive markets are key to growth and productivity, as well as to other good outcomes for businesses and consumers. At that level of abstraction, this is surely uncontroversial.
But what does this mean in practical terms?
Well, keeping markets competitive is not the same thing as leaving them alone. For centuries, it’s been recognised that businesses will naturally try to escape competition in the pursuit of returns. And they can do this in beneficial, pro-growth ways, for example by innovating (as Schumpeter recognised); or they can do it in harmful, anti-growth ways – for example, by colluding (as Adam Smith warned about), or by excluding or acquiring their competitors.
And it is precisely to channel those business incentives away from practices that are harmful to people and the economy, and towards those that are beneficial, that Parliament enacted the legislation – supported and updated by successive governments – that gives the CMA the functions and powers it has today.
I will talk a bit about what that involves in practice. But before I do, I should say that, conceptually, I think it’s unhelpful to characterise those functions as regulation. It does not involve rulemaking for particular markets or sectors. On the contrary, it is the application of a cross-economy framework designed to preserve and promote effective competition. Applied effectively, this removes the need for regulation, since effective competition is – in itself – the best regulator.
So what are the practical implications? In summary, those are: pro-competitive merger control; the enforcement of laws against cartels and the abuse of dominance; and the enforcement of consumer protection law. The CMA also has tools to look across markets and to take steps when those markets are not working well that I will touch on briefly.
Pro-competitive merger control
The need for merger control should be self-evident. Without it, firms could freely acquire market power through consolidation. Value-creating for them, at least for the medium-term. Dreadful for growth.
But of all our functions, merger control tends to attract the greatest amount of outside noise. Often, this comes from the handful of firms whose mergers are blocked. But the loud criticisms sometimes made in the immediate aftermath – that we are holding back growth and innovation, for example, or misunderstanding commercial realities – are not generally borne out by the evidence that accumulates, with rather less fanfare, in the years that follow. To take some examples:
- Footasylum said it would go out of business if it was prevented from being acquired by JB Sports. It went on to record sales and profits in in the most recent financial year; it is expanding across the UK including a flagship Oxford Street store; and it is growing internationally through online sales
- Seedrs and Crowdcube – 2 equity crowdfunding platforms – argued the same thing. Room for one player only. 3 years later, both are going strong
- Clearscore had broken open the credit scoring market, making it an attractive target several years back for Experian, the established incumbent in the sector. Since the merger was abandoned in 2019 following CMA findings, Clearscore has continued to innovate, and revenues have more than doubled. Its Chief Exec has even joined the CMA Board
- Nvidia/ARM. Do I need to say more: how’s Nvidia doing nowadays? How’s ARM doing?
Of course, it’s entirely unsurprising that firms complain when our decisions go against them. It goes back to the incentives that make the U.K.’s competition regime necessary in the first place. Quite simply, the loss of rivalry from an anti-competitive merger stands to benefit them commercially:
- the firm that buys a disruptive startup no longer has to worry about the threat it poses, and no longer has to think of innovations of its own to counter it – it can simply fold it into their moated castle and charge people to bring the drawbridge down so they can get a look in
- the firm that purchases a supplier of an upstream input and chokes off supply to its rivals can prevail far more easily than by competing on the merits
- the firm that simply buys its way to a position of dominance avoids having to win market share the hard way
All of which if course harms the broader economy. So when we hear that competition-focused merger control is “anti-growth”, it seems sensible to set the complaints of vested interests at a discount. To take a more objective assessment of the evidence. This is particularly so in relation to mergers involving big technology firms, where the lobbying efforts are often sophisticated, and where the potential for growth and innovation that needs to be protected is especially high.
I will touch only briefly on the CMA’s other tools – not because they are less important, but because they are not quite so regularly condemned as anti-growth.
First, enforcing competition law. For example, we’ve taken on cartels in construction, an industry on which almost every sector of the economy depends. And we’ve acted in the digital space to stop platforms abusing their dominant position in a way that risks blocking innovation and growth: for example, securing binding commitments from Amazon and Meta to ensure fair competition on online retail platforms.
Second, consumer enforcement. Effective competition requires genuine consumer choice; without that, it won’t deliver growth and productivity. We’ve targeted some of our work here in markets where that consumer confidence in markets is going to be key to future growth: in green heating and insulation, for example, and tackling greenwashing. The DMCC Bill recognises the importance of consumer confidence to the wider economy, by giving the CMA stronger powers to enforce the law in this area.
And then, finally, our markets function, which enables us to look across whole markets to see if competition is working effectively. That can involve direct CMA action; or recommendations to government. From EVs charging to cloud computing to housebuilding, we are focusing our markets work to promote competition and growth in some of the markets that are most critical to the wider economy.
De-averaging markets: Competition and regulation
Let me move to my third point about understanding the differing fundamentals of different markets and therefore when and where regulation has a role in supporting competition and growth.
I hope it’s clear from what I’ve said so far that I strongly believe (and the evidence shows) that competition is itself a powerful regulator and provides strong incentives for firms to become more efficient and to innovate, driving growth and productivity.
Moreover, regulation can sometimes get in the way of this. From pharmacies to legal services, the CMA has seen in its work over the years that well-intentioned but poorly-designed rules can end up protecting incumbents at the expense of consumers, potential competitors and the wider economy.
But equally, it is simplistic to think that a regulatory bonfire is necessarily going to enhance growth and productivity. We need to de-average. In some markets, regulation is needed to reinforce or unlock competition, and in so doing, enable growth.
I’d like to highlight 3 broad categories of market where regulation is needed to work alongside traditional competition policy tools to deliver growth and productivity.
The first is natural monopolies, such as the utilities sectors, where it is inefficient for the economy to duplicate a set of network assets. Here, the job of pro-growth regulation is – first – to recreate the disciplining effects of competitive pressure; and second, to inject competition wherever possible – for example, through tendering for the delivery of strategic infrastructure. Regulating in a pro-growth way in these sectors is a big and difficult job. But it is clearly a critical one, given their economic importance, and the need to upgrade our infrastructure to support future growth.
The second is markets that may well be conducive to vibrant competition but whose smooth functioning is critical to the performance of the wider economy. Where disruption can have negative spillover effects into the broader economy and harm growth. Financial services are a key example. Here, regulation promotes stability, to ensure the system can serve the needs of the economy in good times and bad. But, importantly, the financial regulators also have competition objectives, so that they do not create the stability of the graveyard. In these cases, we need to be careful that regulation is pro-growth, for example, that it delivers stability and resilience in a way that does not unduly harm competition – for example by favouring large incumbents, or preventing the development of innovative business models.
The third category is markets that have a tendency towards the concentration of market power that can’t be addressed through traditional competition tools. This might be down to a range of characteristics: network effects, for instance, scale economies, switching barriers, the power of data to leverage market power from one activity into an adjacent one… dynamics that you will recognise in several of the digital markets. In these sorts of markets, competition is possible – they are not per se natural monopolies. But additional measures may be required to unlock it. The DMCC Bill, and the new functions it creates for the CMA, will address precisely these kind of risks in digital markets. It will enable us both to prevent and to address, in a highly targeted and proportionate way, situations where firms with entrenched and substantial market power in digital markets hold back innovation and growth.
We’ve set out provisionally how we will implement the new digital markets competition regime – in a targeted, proportionate, outcomes-focused way. We’ve also set out our commitment to stay abreast of developments, reflecting that these markets can move rapidly. Our work on AI foundation models is part of that effort to keep pace with developments. And one of the notable findings emerging from that work is that, in AI, we have a disruptive technology that – perhaps for the first time in the history of innovation – is not disrupting the major incumbents who already hold strong market power in some of today’s most important markets, but instead could end up reinforcing their market power. Aggravating the pre-existing tendency towards concentration. We’ve not taken any provisional decisions on prioritisation for the new regime. But more generally, as a competition authority, we must increasingly be prepared to think and act at pace to ensure the huge economic potential of technological change is maximised for the economy as a whole.
Before moving on from where and when regulation plays a role, let me say one last thing, about translating that role effectively into objectives for regulators. Across all sectors subject to regulatory oversight, it is often the case that wider policy objectives are at stake – beyond growth and competition. Policy objectives that are for elected governments, not appointed regulators, to decide. However, governments over the years have sought to deliver these wider policy objectives by adding additional duties and objectives to many of the regulators.
The CMA is in a fortunate position here – in all our work, and in exercising our digital markets powers in the future, we have only one main duty – to promote competition for the benefit of consumers.
And I believe that clarity helps us to deliver effectively, across all our different functions, in a way that best supports growth for the economy.
So it won’t surprise you that I agree with the concerns expressed by the Lords Industry and Regulators Committee about the risks of sector regulators having multiple objectives. As I’ve said elsewhere, it is essential that Parliament and government, our democratically elected representatives, set clear objectives for the regulators; and, if they set multiple objectives, to give clear guidance on how tensions and trade-offs between those objectives should be made, and made transparent to the rest of us. And it won’t surprise you either that, from my perspective as Chair of the CMA, I particularly worry if replicating the discipline of competition in regulated sectors becomes neglected when it sits alongside heaps of other duties. Because if it is indeed neglected, that will likely come at a cost to innovation and growth. One solution – as the Committee suggests – could be clear government guidance on the management of these trade offs, including how the regulators should approach competition in their sectors. Another could be a simplification of the duties and objectives.
Independence and the institutional framework
Strong competition, underpinned by the CMA delivering on its clear statutory duty; and effective, pro-competitive regulation in the markets where effective competition is lacking. Are these enough to provide the best conditions for growth?
Not quite.
Growth requires investment. Investment requires open, competitive markets, but it in addition, it requires an environment of stability and predictability.
Investors put a price on the risk of political intervention. And they demand higher returns, or even decline to invest, if this risk is high. So it is right that our competition and regulatory frameworks give the CMA and sector regulators operational independence. It provides assurance to investors that our decisions are objective and evidence-based; and that the rules of the game are not going to change on a political whim or as a result of fierce lobbying by powerful vested interests. In a regulatory context, this stability is especially important to the long-term investment in major infrastructure that is so critical to meeting the UK’s economic challenges.
A track record over years of consistent, predictable regulatory decision-making is a national asset and key driver of the UK’s international competitiveness. And long may it continue: in the discussions over pro-growth regulatory reform, we must not lose sight of the growth-enhancing features of what we have already.
In this context, it is ironic that the loudest cries for Ministerial intervention often come from the presidents of multinationals, threatening to pull their investment if a decision doesn’t go their way. To succumb to these pressures would not only be undemocratic. In trading off the hard-won, long-term economic benefits of stability for the short-term commercial gains of a global corporation, that would pretty much be the most anti-growth measure imaginable.
Of course, independence does not mean disregarding political priorities. At the CMA, we consider it proper and helpful that the UK government and the devolved administrations engage with and inform the CMA’s work. They hear from the same people and businesses that we serve, and their insight can influence our priorities. And for sector regulators, central government steers can help guide trade-offs across multiple duties or objectives. But there are some basic principles that should be followed.
First, transparency. Strategic steers and other statements of Ministerial priorities should be published, so the influence of government is clear.
Second, the influence should be directed at a strategic level, with a view to shaping priorities, rather than individual decisions.
Accountability
Let me move to my final point, about accountability. As in the economy, so in the constitution – power needs to be checked and balanced. And when power is given to independent bodies like the CMA, it needs to be subject to the highest standards of democratic accountability. This is something the CMA actively embraces and encourages. Because without that accountability, we may still have powers, but no licence to use them.
This is important now more than ever. Among advanced economies, the latest data shows that the UK has exceptionally low levels of trust in government. And although I have been at pains to emphasise our independence, we can’t kid ourselves that the people and businesses we serve care about the difference between a Ministerial and a Non-Ministerial Department. So we – the CMA and the wider regulatory community – have a huge job, as part of our accountability to the public at large, to address that trust deficit. To show that we are on their side. That we act in their interests. That we deliver real, tangible, positive outcomes for them. And explain those outcomes in ways that are meaningful and clear.
Over the past 18 months, we are doing more than ever to explain and account for our choices, decisions, and impact: to the public at large, by transparently publishing everything we plan, decide and do, and why; formally, before parliament and with our sponsor department; and more informally, through our regular, continuous engagement with Ministers, other elected representatives, consumers and consumer organisations, businesses and their advisors.
But the number of regulators, and the complexity of their activities, makes parliament’s scrutiny job a big and challenging one. It is not for me to tell parliament how to organise itself, or how best to hold the CMA and regulators to account. But I do have some suggestions to address the concerns expressed by the Lords Industry and Regulators Committee about the current ad hoc nature of regulatory scrutiny. Suggestions that could help make parliamentary scrutiny less reactive and ad hoc, and more probing and systematic.
- first, regular Committee hearings, in proportion to the size and remit of relevant body. That would mean the CMA and the larger regulators appearing perhaps 2 or even 3 times a year before their respective Committees, with smaller ones less often
- second, basing core scrutiny on the key annual milestones of (1) setting priorities and (2) reporting results and effectiveness. For example, around the publication of the draft strategic plans, and annual reports
- third, combining forces where the remits of regulators range across multiple Committees
To my mind, this would be more efficient, more effective, with less friction cost and less risk of a box-ticking approach – than a new single oversight body for all the regulators inserted between Parliament and the regulators.
The power of competition. Sustained by the CMA. Reinforced, where competition is lacking, by targeted and proportionate regulation. Delivered independently, but accountably. That is a pro-growth framework. And as we consider how to bolster the economy, it’s one that we should look to build and sustain.
(1) British Privatization—Taking Capitalism to the People.
(2) DP17635 The Breakup of the Bell System and its Impact on US Innovation.