UK's Leadsom inherits bulging competition reform in-tray

31 July 2019 00:00

Boris Johnson’s government has inherited a deep in-tray of reforms to UK competition and consumer law. But with a gridlocked parliament, and an administration zeroed in on Brexit, there’s no guarantee of progress soon.

Theresa May entered office in July 2016 promising radical reforms to the UK’s economic governance, tackling “dysfunctional” markets that penalize “ordinary working people.” The government’s business department had “industrial strategy” added to its title, heralding a more interventionist era.

She resigned three years later with the job only half-done: She held sweeping consultations on reforms to consumer, competition and investment screening law, but failed to introduce legislation to parliament.

Johnson’s new business secretary, Andrea Leadsom, has offered no clues yet if she’ll push on with May’s legacy. One strand of continuity is that Kelly Tolhurst, the junior minister responsible for competition law during Greg Clark’s tenure, will remain in post, the government confirmed on Friday.

Whatever Leadsom’s intentions, the new government inherits the same deadlocked parliament that stymied May’s agenda, and the dash for Brexit by Oct. 31 risks dominating ministers’ time. Fresh legislation may be unlikely this side of a general election.

— Consumers first —

Squarely in May and Clark’s crosshairs was the “loyalty penalty” — the phenomenon of customers overpaying for services after being lured in by cheap introductory offers, only for prices to rise.

“These are business practices that rely on undermining the trust of the consumer,” Clark said in a valedictory speech this month.

While customers are free to switch, many understandably fail to reevaluate each and every subscription, from mobile phones to car insurance. The results can be “eye-watering,” Clark said: up to 1,549 pounds ($1,882) per year for a household that fails to switch suppliers in all the markets studied by the government.

An initial consultation on consumer reforms, entitled “Modernizing Consumer Markets,” was published in 2018. A further consumer policy paper, containing detailed proposals on reforms to consumer law and the powers of the Competition and Markets Authority, was scheduled by Clark for this autumn.

But a volley of policy announcements in June — intended to cement May’s legacy before she left office — pre-empted that process. May said the consumer paper would consult on handing the CMA the power to levy fines on companies that breach consumer law, without recourse to the courts.

The government would also consider legislation to tackle “subscription traps,” contracts that prove difficult for consumers to terminate, she said. The announcement didn’t acknowledge that neither May nor Clark would be in office to deliver on the pledge.

In February, CMA chair Andrew Tyrie put forward his own shopping list of potential reforms in a letter to Clark. This included allowing the agency to make interim orders to halt harms in rapidly moving markets; broader information-gathering powers, and rewriting the agency’s statutory mandate to focus on the “consumer interest."

— Digital markets —

May and Clark’s second focus was on joining the efforts of antitrust regulators around the world to challenge the alleged dominance of Google, Facebook and other tech giants. Their last months in office saw a flurry of overlapping ideas.

In March, the Treasury published a report from US academic Jason Furman, who proposed radical reforms including amending the CMA’s statutory test for intervening in a market to a new “balance of harms” approach, and conducting major surgery on its merger assessment rules.

It also proposed creating a new “digital markets unit” responsible for policing the largest tech companies and overseeing a regime of data portability, that would see users able to switch between platforms.

This proposal was met with some caution from Tyrie, given his own agency’s growing work in the area. Nevertheless, in June, as part of her series of legacy announcements, May endorsed Furman’s call for a digital markets unit, while dodging the crucial question of whether it would be a standalone body or sit within an existing regulator.

In July, the CMA began a market study on the dominance of Facebook and Google in the digital advertising market. It too will consider the case for data portability as a remedy, as well as toughening user consent processes and introducing greater transparency in the adtech industry. It will report by next summer.

It will be for Leadsom to pick up the reins. A competition policy paper and a formal response to Furman’s report are planned but no date has been set.

— Auditors —

Reforming the UK’s audit industry to end the dominance of the “big four” — PricewaterhouseCoopers, Deloitte, EY and KPMG — has been another major strand of work for the Department for Business, Energy and Industrial Strategy. A string of financial misreporting scandals has driven calls for greater competition in the industry to drive up pressure.

On July 18, the week before he left office, Clark’s department published a consultation on reforms proposed by the CMA.

These proposed splitting the firms’ audit and consultancy arms, and mandating joint-audits between large and small practices. Further government proposals, and further consultation on recommendations put forward by the Financial Reporting Council, were scheduled by Clark’s department for later this year.

— FDI Screening —

Theresa May swiftly indicated a more hawkish line on foreign investment screening on entering office, temporarily putting on pause Chinese investment in the Hinkley Point nuclear power plant.

In June 2018, the government amended the revenue thresholds for the government to intervene in mergers in military and advanced technology sectors on national security grounds.

Clark’s department also consulted on further reforms last summer, including an expanded call-in power and a mandatory notification regime for foreign investment in critical sectors. Clark had planned legislation for the 2019-20 session of parliament, which Leadsom must now decide whether to pursue.

— State Aid —

In the event of a no-deal Brexit, responsibility for merger control, anti-trust probes and state aid enforcement in the UK is due to shift to the Competition and Markets Authority.

But while the secondary legislation to hand responsibility to the CMA for competition law has been passed by parliament, that for state aid has not, despite being first presented to lawmakers in January.

The sticking point appears to be a stand-off with the Scottish government, which argues the legislation doesn’t reflect the constitutional balance of powers between London and Edinburgh.

The UK parliament can legislate over the heads of these protests, but ministers have so far held back from doing so. As a no-deal date approaches, that calculation may change.

— Arithmetic —

If she’s looking to make a mark as business secretary, Leadsom has inherited a fortunate position, with a raft of oven-ready and high-profile policies.

But the option to do so will be limited by the fraught parliamentary arithmetic that had stymied May’s reforms and, ultimately, ended her premiership.

CMA chief executive Andrea Coscelli told lawmakers in June that good progress had been made on draft legislation to reform consumer markets.

“Things are blocked at the moment, but there is quite a lot that is essentially ready to go, I understand, when that situation changes,” he said.

Johnson’s determination to exit the EU by Oct. 31 is also a major obstacle.

The government is said to be reluctant to bring any legislation before lawmakers that could be amended to block a no-deal exit, and it has ordered that the delivery of Brexit be its overwhelming focus. Leaving without a deal would likely consume the government’s and regulators’ attention for years to come, and crowd out more elective reforms. May’s agenda risks being in limbo for some time yet.

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