The new Competition Markets Authority: making competition work for consumers, businesses and the economic growth
Speech to the Law Society’s Competition Section annual dinner.
Thank you for your hospitality this evening and for inviting me to speak to this distinguished audience this evening. And may I thank you, Richard, for your generous words of introduction. I hope my remarks this evening will provide at least high level answers to some of the questions you raise.
In preparing for this evening, I was reflecting that over the past year or so it has been my pleasure and privilege to have spent much time in the company of lawyers – long hearings in Court 73 of the Royal Courts of Justice, listening to the evidence presented to Lord Justice Leveson in the course of his Inquiry into the ethics, culture and practices of the press. His report, produced in an unusually timely and expeditious way for a judge-led Inquiry, is published tomorrow, so I cannot comment on it in any way tonight, even though it is being pored over in the offices of the core participants, including government – any leaks will come from elsewhere not the Leveson team. But I do commend it to you as a very good read and with recommendations that need to be taken very seriously by all sides.
And my new role as Chair Designate of the new Competition and Markets Authority, means that my interaction with lawyers will continue long after Leveson has been implemented, as I am sure it will. And I welcome that, for I have always found my interactions with competition lawyers to be very constructive and fruitful. Effective competition policy requires soundly based, definitive and evidenced economic analysis; but it also requires the very best legal analysis, support and underpinning, especially in our increasingly litigious age. I know that the community present here tonight will play an essential role in helping the Competition and Markets Authority to achieve that combination.
When I took on my new role, I knew just what a privilege and responsibility it represents. Few people have the opportunity to create a new organisation, and I have been given that privilege twice, first as the founding chairman of Ofcom and now, exactly ten years later, as the founding chairman of the new Authority. I am very conscious that I follow in the footsteps of many distinguished lawyers, economists and competition experts who have led the Office of Fair Trading and the Competition Commission in the past to such good effect. The responsibility is considerable. The Office of Fair Trading and the Competition Commission have strong reputations, both here and internationally, as highly effective competition authorities, and the UK competition regime is well regarded. Both organisations attract highly professional and dedicated staff, and I have had that confirmed many times over in many meetings at all levels of the two organisations in the past few months since my appointment was announced.
The vision and the path to transition
There is a great deal to be managed over the next year or so before the new Authority assumes its powers in April 2014: to name but a few,
- the choice of location
- the design of the new organisation
- a complex job-matching process
- IT systems
- the negotiation of a realistic budget
- the revision of a large corpus of guidance in the light of the new legislation and new ways of working
Many of these issues are common to any public sector merger, so many of which are less than successful. Fortunately we have adequate time to get things right. We also have the benefit of the substantive case study of the Ofcom process, which provides a checklist of many of the things to watch out for. I commissioned Tony Stoller to write that study after the Ofcom merger because I felt that we had lacked any such roadmap and guide to the many pitfalls: in important ways we had been flying blind during the transition. I little imagined that I would be a direct beneficiary from this hard-earned experience.
Despite the complexity of task at hand and the additional challenge of creating a new organisation during an age of austerity, there are three high level objectives that will be paramount.
First, we need to ensure that the new Authority is a high performance organisation at least as effective as, if not more so than, the two organisations that it replaces. That is a high ambition because both the Office of Fair Trading and the Competition Commission are highly regarded, but it is entirely achievable. So I want to make sure that we transfer the expertise and experience to the new Authority. Above all, we need to make sure that the new Authority is established as a vibrant organisation with a fresh, dynamic culture that embodies both new elements and the best of the two legacy bodies and retains and integrates the talent of their staff.
Second, we need to ensure that the casework of both the Office of Fair Trading and the Competition Commission continues unimpeded and the transition of work in progress to the new Authority is seamless. We are establishing processes and guidance to ensure that.
Third, we need to ensure that all colleagues are treated fairly during the transition. We have established the legal principles for that transfer. Not all staff will transfer to the new Authority, but all but a handful of positions in the new Authority will be filled from the existing bodies. Despite these reassurances, it is an unsettling period of transition for staff and we are working hard to communicate effectively through the process to keep uncertainty to the minimum.
The early processes for building the new Authority are underway, with my appointment, the search for the CEO designate, the formation of a transition team drawn from BIS, the Office of Fair Trading and the Competition Commission, and clarification of the legal basis for the transfer of staff from to the new Authority. Colleagues in the Office of Fair Trading and the Competition Commission have an understandable wish to engage with the complex transition process, and we need to find ways of enabling that while not distracting them from their current roles.
Faster and more robust decision-making
In the House of Lords 2nd reading debate, one or two of my colleagues questioned why reform of a recognised, world-leading competition regime was needed. As I said to them, I believe the combined organisation will be able to deploy resources more effectively and flexibly to the different parts of its work; deliver decisions in a more timely way and provide a single, and therefore stronger, voice and advocacy, both at home and internationally, on competition issues.
We will need to rethink and re-engineer our processes to achieve greater timeliness with no diminution of the quality of analysis and decision-making. The new Authority will have to adhere to tighter timetables: a 12 month statutory time limit for phase 1 market studies, and an 18 month limit (down from 24) on phase 2 market investigations, with a possible 6-month extension in extenuating circumstances which I hope we won’t have to use. In an increasing number of fast-moving sectors, such as communications with which I am rather familiar, justice delayed is justice denied, so this tightening of the timetable is very welcome. We will need to put in place processes within the new Authority to ensure that these limits are met and preferably undershot. I firmly believe that the discipline provided by these time limits will reduce consumer detriment and increase business certainty.
I am aware of the concerns that moving away from two separate bodies responsible for investigations and decision-making in an array of competition enforcement areas will lead to less robust decisions and result in ‘confirmation-bias’. I believe that the legislative reforms will provide sufficient safeguards to prevent this. There will be a clear separation of decision-making functions at phase 1 and phase 2 of the mergers and market investigations frameworks and with respect to antitrust enforcement. And we will be doing some hard thinking about other ways of enhancing the quality of decision-making.
In mergers and market investigations, phase 1 decisions will be taken by, or on behalf of, the Board of the new Authority: the Board has overall responsibility for strategy and performance, and will therefore need to consider which class of decisions it will wish to take itself and which to delegate, and under what delegation protocols. In phase 2, the Bill provides that a group of senior experts is retained within the decision making process to ensure a fresh pair of eyes reviews the evidence.
The Authority will also have new powers to make antitrust investigations more efficient and fair. For example, it will have the power to ask questions that will assist the Competition and Markets Authority in establishing the facts of a case more quickly. New arrangements under the rules will also provide for those responsible for final decisions on a case to be independent of those responsible for the initial investigation. We will also consider ways of strengthening collective judgement in antitrust decisions and enhancing the dialogue between the Competition and Markets Authority and the parties.
Reform of the cartel offence
Another important reform is the proposed removal of the dishonesty test in the prosecution of possible cartels. This test has been the single most important reason why the Office of Fair Trading has been unable to bring more cases to trial. Hardcore cartels represent a major barrier to dynamic, innovative markets and economic growth, and this change is greatly to be welcomed. I know that there are a number of questions in the legal community about how the new defence will work, and I intend that those questions are answered in a timely, effective and satisfactory way.
Providing leadership to and working in partnership with the sector regulators
We will also work more closely than ever with the sector regulators. The regulated sectors form some of the most important parts of the economy, and it is vital that competition works well within them.
Some have been critical of the sector regulators for using detailed sectoral regulatory powers rather than relying on their competition powers, while the Office of Fair Trading has been criticised for holding back from exercising its competition powers. This has led some to call for the sector regulators to be stripped of their competition powers if they fail to become more proactive in using them. Removing concurrency is not the right answer at this time. The Enterprise and Regulatory Reform Bill includes measures to require the regulators explicitly consider using their antitrust powers and to give the Competition and Markets Authority a leadership position on competition enforcement. So, I believe that the best way to deliver stronger competition enforcement is to follow the path of enhanced cooperation, led by the new Authority, drawing on the sectoral expertise of the regulators and the competition expertise of the Authority. We will be reporting annually on the concurrency arrangements, and we should be clear: if greater cooperation does not work, the Authority must be willing and able to exercise its powers if sector regulators fail to do so.
A significant consumer protection role for the new Authority
So far, I have emphasised the enhanced nature of the reforms and how I will work to create a new, dynamic Authority with wider powers to deploy in the field of competition law. But the Competition and Markets Authority will also have the important and complementary role of consumer protection. Consumer protection and competition law work together: effective competition empowers consumers and well-informed and protected consumers make competition more effective.
Under the reforms, the National Trading Standards Board will play a bigger role in the enforcement of consumer law, with the cooperation of the Competition and Markets Authority. The Authority will have a range of consumer enforcement powers and primary expertise and responsibility for the enforcement of unfair contract terms legislation, taking responsibility for high profile national cases, such as surcharges that stem from misleading advertising prices, as well as international cases. Mechanisms are being put in place to ensure enhanced cooperation between all the bodies involved, which include Trading Standards, Citizens Advice, the Competition and Markets Authority and the new Financial Conduct Authority: sharing intelligence on consumer detriment and allocating enforcement action. This will be a critical area of the new Authority’s work and as an early signal of its importance I have already engaged with Trading Standards at both a national and local level, meeting only yesterday in Norwich with the Chair of the National Trading Standards Board. And it will require the full engagement of local authorities who are responsible for the funding of local Trading Standards.
The importance of the Authority’s advocacy role at home and abroad
The Office of Fair Trading is widely regarded as ‘punching above its weight’ on the international arena – there were calls for this to be replicated in the new Authority. I pledge that we will build on this success to make the Competition and Markets Authority a world class organisation renowned for its casework and advocacy.
As well as being an advocate, the Competition and Markets Authority will also provide practical advice and support to those bodies undertaking competition and market reform both within the public sector in the UK and to overseas competition authorities.
Action and engagement internationally will take various forms, from competition advocacy through to enforcement. I think that on the latter, the Marine Hose case is a very visible example of international cooperation in competition enforcement arena and underlines both the close working relationships between the UK competition agencies and other competition enforcement agencies, most notably the European Commission and US Department of Justice, together with agencies from Japan and Australia. It is my firm aim that the Competition and Markets Authority will build on this confidence and that we continue to punch above our weight internationally.
Beyond cooperation in international investigations, the Authority will maintain the UK’s bilateral cooperation initiatives and the work carried out within multilateral fora including the International Competition Network, the European Competition Network, and the OECD with respect to competition advocacy, international enforcement and benefiting from knowledge about international best practice.
Conclusion
I have outlined to you this evening the complexities and challenges that we face in introducing a new competition authority and new competition regime: I have also outlined why I think there will be real benefits from the creation of the Competition and Markets Authority. I have a simple test for success to apply, namely that when we look back in three year’s time that it has been all worthwhile. Obviously there will be more specific measures underlying that. The combined organisation will be able to deploy resources more effectively and flexibly. It will deliver decisions in a more timely way with no diminution of quality, to the benefit of consumers and businesses. It will provide a single, and therefore stronger, voice and advocacy, both at home and internationally, on competition and consumer issues. And for its staff it will provide a wider range of work, opportunity and experience. And in doing so, by strengthening competition through the British economy, it will be fostering the growth, investment and innovation which is so needed in these straitened times. I look forward to engaging with you to ensure that all these benefits are realised and that the UK benefits from globally first class competition for decades to come.