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Government proposes reforms to UK competition and consumer law

Posted on 30 July 2021

It has been over two years since former chair of the Competition and Markets Authority (CMA), Lord Andrew Tyrie, called for reforms to impose an overriding "consumer interest" duty on both the CMA and the courts. In that two years there has been an unprecedented shift in the way in which consumers shop and, in turn, immense innovation in the sale of goods, services and digital content.

Post-Brexit, and following the impact of the pandemic, the Government recognises the opportunity to bring UK competition and consumer policies into the 21st Century and, as part of its "Build Back Better" growth plan, launched a consultation "Reforming Competition and Consumer Policy: Driving growth and delivering competitive markets that work for consumers."

The consultation, which closes on 1 October 2021, cites the objectives of the reform as "giving businesses confidence that they're competing on fair terms, and the public confidence they're getting a good deal" and creating an efficient and predictable competition regime, in which harms to consumers are remedied quickly, and costs and uncertainty for businesses are reduced.

On their face, these aims are promising for small businesses and consumers in the UK. It may, however, come as somewhat of a surprise that, despite promises to "slash Brexit red tape", the reform could lead to a regime stricter than that which regulates their EU competitors.

Reforms to competition policy and the CMA

As the consultation notes, the UK competition regime and its regulator, the CMA, is already well established and has a strong track record. For example, it is estimated that, through its interventions, the CMA has saved consumers more than £7 billion over the past three years.

Nonetheless, it is apparent that competition policies have not kept pace with the challenges presented by the 21st century, and arguably levels of competition have declined since the last overhaul of competition legislation in 1998. A robust competition policy framework is essential for preventing the harms caused by anticompetitive practices (such as abuse of dominance, price fixing and market sharing). A lack of competition in a market reduces creativity and productivity, shuts out smaller businesses, increases consumer prices and decreases consumer choice.

In order to strengthen and modernise the UK's competition regime, the Government therefore proposes the following reforms:

  • Creating a more efficient, flexible, and proportionate market inquiry process which allows for: interim measures in market investigations to prevent potential harm during ongoing investigations; powers to resolve competition concerns quickly through binding commitments; and greater flexibility to monitor and review remedies from previous market enquiries.
  • Creating a more effective and proportionate merger control regime by: raising the current turnover-based threshold for the target of a merger from £70 million to £100 million; removing from the CMA's jurisdiction mergers between small businesses where each party's worldwide turnover is less than £10 million; and reforming investigative procedures to increase speed and efficiency.
  • Protecting small businesses by blocking "killer-acquisitions", whereby innovating firms are acquired in the early stages of development by large market players, thus eliminating competing innovation.
  • Strengthening the CMA's investigative and enforcement powers through: greater incentives for whistle-blowers; increased flexibility in the CMA's decision-making; stronger powers to obtain information; sanctions for those businesses which fail to comply with investigations of up to 1% of annual turnover (and additional daily penalties of up to 5% of daily turnover for the duration of non-compliance); and enhanced powers to facilitate cooperation between the CMA and its international counterparts.

In addition, the CMA has established a Digital Markets Unit (DMU). The DMU is intended to oversee a "world leading pro-competition regime" for the digital market, which currently contributes over £150bn to the UK economy. The objective of the regime will be to address the power imbalance between large incumbents and small businesses, in order to drive innovation, increase productivity and deliver better quality services for consumers, with greater choice and lower prices.

The Government has opened a separate consultation on this aspect of its proposals, a new pro-competition regime for digital markets, which also remains open until 1 October 2021.

Reforms to consumer protection policy

The Government recognises the necessity of ensuring that the unprecedented innovation we are experiencing today, particularly in digital markets, serves the needs and best interests of all consumers.

In response to recent market changes, including the increase in online shopping accelerated by the pandemic (Amazon reported a 45% increase in online sales in 2020) and a rise in consumer spending on subscription contracts (now estimated to be between £28bn - £34bn each year according to the consultation), the Government has proposed the following reforms to consumer protection policy:

  • Strengthening and clarifying the law on the provision of pre-contract information to consumers to tackle subscription 'traps' and ensuring that consumers are given a choice on auto-renewal, are reminded of their ongoing subscriptions and may easily cancel subscriptions.
  • Preventing online exploitation of consumers through stronger legislation surrounding fake online reviews. This would include adding commissioning or incentivising a person to write a fake consumer review as an unfair (and therefore prohibited) commercial practice under the Consumer Protection from Unfair Trading Regulations 2008.
  • Enhancing powers and legislation to take action against website operators which collect and use consumer data to unfairly exploit consumers' behavioural biases and influence purchasing decisions.
  • Reducing the risks faced by pre-paying consumers of the provider becoming insolvent by mandating the safeguarding of customers' money through, for example, insurance or trust accounts.
  • Strengthening enforcement powers, including fines of up to 10% of global turnover for traders in breach of consumer protection law and sanctions for traders that fail to comply with the enforcement process.
  • Encouraging faster independent dispute resolution through improving access to, quality and oversight of alternative dispute resolution services such as arbitration and mediation services, and even making these routes compulsory in cases where consumer detriment is high (such as the used car and home improvement sectors).
  • Strengthening the UK's collective redress regime, to improve direct access to remedies for victims of consumer law infringement.

These proposals are all at the initial stage, and the consultations represent an opportunity for interested parties to seek to influence the way in which they develop.

If you are interested in contributing to one or both of the consultations before 1 October 2021 and would like assistance with doing so, or would otherwise like to discuss the implications of the proposed reforms, please contact Neil Baylis.

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