There is plenty of speculation in the competition community about what the new UK government means for the CMA and its approach to enforcement. Will Labour want the CMA to be more consumer-friendly or more business-friendly? Will Labour want it to focus narrowly on competition or more broadly on industrial strategy and other policy objectives?
I wrote about some of these issues recently for the Social Market Foundation. But there is an important prior question. How much flexibility does the CMA actually have, under its statutory framework, to change its approach in line with changing policy priorities?
At this point there are some battle-scarred practitioners who will raise an eyebrow and reply, “The CMA can do whatever it likes.” And there are a few politicians who think the CMA’s statutory duties are so narrow that only a change in the law will do. So what is the truth of the matter?
To help answer that question, there is a very timely article by John Vickers in the new edition of the Journal of Antitrust Enforcement on the subject of the consumer welfare standard. (I’d recommend subscribing to the Journal if you don’t already have access, but you can also read the text of this particular article for free here as it was originally given as the 2024 Bellamy Lecture.)
To recap, the CMA’s primary duty under the Enterprise and Regulatory Reform Act is “to promote competition, both within and outside the UK, for the benefit of consumers”. When it comes to merger control, the CMA is required under the Enterprise Act to decide whether a transaction is likely to lead to a “substantial lessening of competition within any market or markets in the United Kingdom for goods or services” which Vickers says is “consistent with the consumer welfare standard at least in broad terms.”
Vickers’ article covers four areas where the CMA, along with its counterparts in other jurisdictions, is coming under pressure to act in ways that might depart from a rigid focus on consumer welfare: ‘competitiveness’, employment, inequality and environmental sustainability.
Taking the first of those areas, there is pressure in the UK, EU and US for competition authorities to soften merger control in the name of economic growth and national (or European) competitiveness.
On the face of it, the fact that there have been significant shifts in merger control in these jurisdictions in recent decades, without any changes in legislation, would seem to be strong evidence that the agencies do indeed have a considerable degree of discretion. However, those shifts have usually been justified by arguments based on competition or consumer welfare (e.g. learnings from past cases, looking at new forms of evidence, reevaluating the risks associated with Type 1 and Type 2 errors) rather than trading off competition against ‘competitiveness’.
Vickers is clear in his view that a softening in the name of competitiveness or growth would be inconsistent with consumer welfare and undesirable even on its own terms:
…the ‘competitiveness’ argument for relaxed competition policy is weak and prone to be captured by vested interests. It is weak because competition—and again I mean competition-to-offer-consumers-good-deals—is generally positive, not negative, for productivity, and it is hard to see what ‘competitiveness’ usefully means if not productivity.
Furthermore, it is striking how often proponents of policy intervention in the name of ‘competitiveness’ mean the competitiveness of their own sector, not of the economy as a whole. For example, easing capital requirements on financial institutions may be good for their ‘competitiveness’ because it increases the implicit subsidy to them from taxpayers, but the competitiveness of the economy requires precisely the opposite policy, to reduce crisis risk. As a general matter, it is worth remembering that my subsidy is your tax.
I would expect the CMA to agree with that view.
On employment the issue is more complicated. If the CMA is faced with a merger that it thinks would harm consumers, it certainly cannot clear it on the basis that doing so would be better for the workers in those companies.
But what if the concern is that workers would be the ones to lose out from a merger that substantially increases market power? Vickers writes that “there seems no reason to exclude labour market effects altogether from merger review—labour markets can presumably be ‘markets for … services’ within the meaning of the Act,” so the CMA would not be precluded from considering a labour monopsony theory of harm even in a merger where it finds no harm to consumers, though in practice Vickers thinks such cases are likely to be very rare indeed.
When it comes to tackling social and economic inequality, Vickers notes that the current regime automatically gives the CMA a role. He writes that “the consumer welfare standard already has distributional implications” because it weighs the consumer detriment from a merger without offsetting against it the profit gain to the companies. More broadly, the CMA has found that weak competition hits the poorest households hardest because they tend to spend a larger proportion of their income in markets that are highly concentrated. As a result the CMA can argue that it is already playing its part to tackle economic inequality. Under a Labour government it has more of a reason to make this point publicly, as well as to focus its markets and antitrust work more on those potential cases that affect people on low incomes or who are otherwise disadvantaged.
Finally, on environmental sustainability, Vickers is very sceptical about the role for competition authorities. He quotes Schinkel and Treuren who write that “well-intended, green antitrust risks damaging both competition and the environment. It will suppress … market forces for companies to produce more sustainably, overburden competition authorities, invite abusive cartel greenwashing, and give the part of government that should promote sustainability further excuse to shun their responsibility for designing proper regulation.”
But even here, competition authorities have scope for flexibility. As well as the kind of ‘green antitrust’ that Schinkel and Treuren criticise (i.e. choosing not to bring cartel cases against environmental cooperation agreements if the agency deems them justifiable), the CMA can also make a more positive contribution.
The CMA’s new medium-term strategy under Marcus Bokkerink and Sarah Cardell – which was the last project I led before leaving the agency in March 2023 and which was re-confirmed and updated in March this year – commits the agency “to take action to accelerate the transition to a net zero economy and promote environmental sustainability.” It does so largely through its prioritisation and case selection rather than by giving any less attention to consumer welfare. For example, the CMA chooses to undertake market studies in areas relevant to transition to net zero, e.g. on electric vehicle charging, and it has undertaken a great deal of consumer protection work on misleading environmental claims, in order to give consumers greater confidence when participating in these markets.
All this suggests that the CMA’s statutory focus on competition and consumers still gives it a good deal of flexibility to contribute to broader public policy objectives. It is doing so already and this is likely to continue under the new Labour government, either of the CMA’s own volition or through a new strategic steer from ministers, but it does not depend on new legislation.
