Writing recently in the Economist, John Vickers and Bill Kovacic compared the UK government’s competition policy unfavourably with the one pursued last time Labour was in office, from 1997 to 2010.
In that period, Labour was responsible for introducing two landmark pieces of competition legislation – the Competition Act 1998 and the Enterprise Act 2002 – and Vickers and Kovacic described my old boss Gordon Brown as “the principal architect of competition-authority independence in Britain”.
Today, however, Labour stands accused of soft-pedalling competition policy, protecting incumbents and politicising the CMA. These are serious criticisms from people who should be taken seriously. So how significant is the change in policy? What lies behind it? And what can we expect to happen next?
To answer these questions, we need to look at the factors that drove policy change, then and now.
In the 1990s, competition policy had a conceptual appeal for New Labour under Blair and Brown. Their political philosophy was built around a ‘third way’ distinct from the Thatcherite right and the traditional left. In that context, a robust competition policy enabled Labour both to embrace the market economy and to advocate a role for the state in ensuring it functioned effectively.
Even while Labour was still in opposition, Brown was calling publicly for this, pledging the party’s commitment in a 1995 speech to a “pro-competition, pro-consumer” policy for a “dynamic market economy”. (1)
It helped that at the same time the Conservative government was divided over competition policy. The Department of Trade and Industry had published a White Paper in 1989 proposing to align UK and European competition law. However, the draft legislation languished for years, not least because the DTI ministers who favoured competitive markets were anti-European (e.g. Nicholas Ridley, Peter Lilley and John Redwood) while the pro-Europeans were sceptical of excessive competition (especially Michael Heseltine). (2)
Therefore, in a not dissimilar way to its advocacy of planning reform today, Labour was able to put forward a policy which had significant backing within Whitehall and from economists, but which the Conservative government could not implement for political reasons. Labour seized this opportunity with gusto and in 1997, for the first time in its history, it went into the general election promising a major reform of competition law. (3)
Competition law reform had proved to be both good policy and good politics.
A similar story emerged ahead of the 2001 general election. Brown viewed the granting of operational independence to the Bank of England as his biggest achievement in Labour’s first term in office, and as a symbol of how far the party had changed. He decided this model could be followed in competition policy in Labour’s second term:
Having introduced an independent monetary policy, I pressed for an independent competition policy – arguing in the 1999 Budget that cartels and anti-competitive practices had to be broken if we were to expand opportunity for new competitors. And with the Treasury pushing a new Enterprise Act in 2002, we empowered two bodies independent of government – a beefed-up Office of Fair Trading and a Competition Commission – to clamp down on anti-competitive practices. (4)
This idea won enthusiastic support within the Treasury, “the most powerful and consistent champion of competition in Government,” often against the DTI (now DBT) with its “natural role as the advocate for big business incumbents”, according to John Kingman who led the Treasury’s work on the Enterprise Act.
Further support came from Irwin Stelzer, the economist and close adviser to Rupert Murdoch, who advocated a vigorous competition policy and who praised Brown for his stance. (5) Stelzer’s endorsement provided reassurance to the government that in promoting competition it would not fall foul of the proprietor of the powerful Sun and Times newspapers.
So for a second time, the stars aligned in favour of a strong competition policy.
But those of us in the competition community have got so used to the settlement created by the Enterprise Act that we can forget how historically unusual it was, both in terms of the degree of independence granted to the authorities and how deeply invested the government’s political leadership was in it.
In recent years, we have seen more of a return to normal service, not in that the main political parties are especially hostile to competition, but more that it is once again an issue of low political priority for them.
When Labour was in opposition under Keir Starmer, there was little policy development work done on competition, though this did not mean the party was unsympathetic to it. When I was at the CMA I had productive discussions with the party’s advisers and frontbenchers, and the references to competition in Labour’s 2023 industrial strategy document, Prosperity through Partnership, were closely aligned with the CMA’s thinking:
Competitive markets are vital to long-term economic prosperity – driving innovation and promoting higher quality goods and services. But there are signs that competition has been weakening across the UK economy, with mark-ups rising from just over 20% in 2008 to around 35% in 2020 [the CMA’s 2022 State of Competition report is cited as a source].
Labour will therefore ensure our competition regime remains robust and fit for the modern economy. This includes developing a procompetition regulatory regime that addresses the novel challenges posed in digital markets. But the CMA’s research highlights how competition could operate more effectively across the whole economy, including the everyday economy.
At the time, this seemed a sensible political position for Labour to take. Expressing concern about weakening competition allowed them to attack the Conservatives’ record in government, while the commitment to a new regulatory regime for digital markets was straightforward to make given that the Conservatives were already committed to legislating and, besides, the call for tougher regulation aligned with the Labour’s party’s natural instincts.
More broadly, Labour’s main economic attack on the Conservatives at the time was over instability after the Liz Truss mini budget and her “concerted attempt to undermine our independent economic institutions”. In this context it would have been odd if Labour chose to undermine the independence of the CMA.
However, I thought it unlikely that this moment would last. Just before the general election I warned in an article for the Social Market Foundation that over time Labour would likely face a tension between competition policy and industrial policy in delivering its economic growth mission. At a time when the public finances are strained, pledges of investment in infrastructure or other key sectors could be appealing to ministers, even if they come from businesses that have, or that are seeking to acquire, market power.
I also wrote, “It might take a controversial merger or bailout request to bring these issues to the fore, but it is sub-optimal to make competition policy in the middle of a live crisis. In such situations, ministerial intervention might deal with an immediate political problem but at the cost of introducing greater unpredictability in the long run.” Unfortunately this is what happened, with the CMA’s investigations into the big tech firms’ AI partnerships and its new powers for ex ante regulation of digital platforms attracting particular controversy.
After several months of Cabinet ministers receiving complaints from business leaders that the CMA was too tough, burdensome or slow, the issue came to a head at the new government’s global investment summit in London in October. Number Ten briefed the FT that Keir Starmer believed the CMA was “stifling [Britain’s] global appeal.” Eventually, in January, the CMA Chairman, Marcus Bokkerink, was forced to resign and a few weeks later the government issued a new draft strategic steer to the CMA, stating that it must “unambiguously reflect the need to enhance the attractiveness of the UK as a destination for international investment”.
For purists, this turn of events proves why the independence of the CMA is so important, to avoid the short-term political considerations and corporate lobbying to which ministers would be subject. As one former enforcer put it to me recently, “This is why the Bank of England is independent and it’s the same here.”
However, I don’t think that the analogy with the Bank of England really works. In the Bank’s case, the government decides the inflation target; the Bank is obliged to set interest rates in order to hit it; if it misses, the Governor has to write publicly to the Chancellor to explain why; and the Governor is required to give evidence several times a year to the Treasury Select Committee.
By contrast, for most of its existence the CMA has had the freedom to decide its own policy stance, with no obligation to set it out publicly; the government’s Strategic Steer had no bearing on the CMA’s approach to mergers; and until the prohibition of Microsoft/Activision, the Chair and CEO of the CMA had gone nearly four years without being summoned to appear before the Business Select Committee.
The CMA has therefore operated with a greater degree of independence, and with less accountability to government and to parliament, and it is not unreasonable for ministers to want to have a say in its overall policy direction.
This is particularly important because the nature of the policy trade-offs involved is changing. Back in the 1990s, when Michael Heseltine as Trade and Industry Secretary was accused of trying to soften competition policy, the debate was whether ministers should be allowed to intervene “to help strong UK champions capable of competing in European markets.” (6)
Today, by contrast, the most controversial targets of the CMA’s enforcement are not domestic incumbent firms but the biggest international companies and overseas investors into the UK. At a time when the UK government at the very highest levels is having to deal with unprecedented threats to the post-war alliance system, and where a principal concern of the US President is that “American” firms are being regulated by foreign governments, it is impossible for the UK government and the CMA to ignore the geopolitical implications of its enforcement.
The common retort to this is that if wider public policy issues are raised by a CMA merger case, the government has the power to intervene under the Enterprise Act, either under one of the existing “public interest” grounds for intervention or by creating a new one, which it can do in a live case, as it did for example in Lloyds/HBOS. However, if ministers are going to start intervening more in individual merger cases, this will encourage exactly the kind of corporate lobbying that ministers, the CMA and competition lawyers all want to avoid.
A better approach is for the government to do three things.
First, as it takes forward its industrial strategy, the government should make unambiguously clear that it believes competition is good for investment and growth. To be fair, ministers have tried to do this recently, for example in Jonathan Reynolds’ Samsung speech, but the problem is that these messages have tended to get lost amidst media coverage and briefings that give a different impression. And since we are dealing with investor and business perceptions, this is not one of those issues where the communication of the policy is a second order issue. The comms is the policy.
Second, where the government is concerned that robust enforcement could come into conflict with other aspects of government policy, it can use the Strategic Steer to give some overall direction to the CMA. The recently published draft Steer encourages the CMA, among other things, to focus “on markets and harms that particularly impact UK-based consumers and businesses”; to ensure that where the CMA takes action it is “swift, predictable, independent and proportionate”; and, in global mergers, to take into account the actions of other competition authorities internationally so that “parallel regulatory action is timely, coherent and avoids duplication”. Those seem to me to be sensible and legitimate steers for ministers to give the CMA in order to avoid unnecessary policy conflicts.
Third, having set out its Strategic Steer, the government should make clear it is for the CMA to take its decisions on individual cases independently and free of ministerial interference. In order to be effective, this message would have to be communicated publicly to the media and privately to anyone seeking to lobby for such interference.
Finally, the challenge the government has now got is the one that I warned about in my SMF article. Ministerial intervention can address a short-term political problem at the cost of creating long-term unpredictability. Now that the impression is out there that ministers may be willing to interfere in the CMA’s work, it is hard to put that toothpaste back in the tube.
That is why business and investor expectations will only really be reset when they are challenged in a live case. What happens if the CMA follows its new Strategic Steer but still finds there is a controversial merger that it concludes would damage competition, harm UK consumers and deserves to be blocked? Will the government be prepared to stand by the CMA and its independence, even if it must pay a political price for doing so? That is the key test to look out for.
REFERENCES
(1) Quoted in Wilks, S., 1999. In the Public Interest: Competition Policy and the Monopolies and Mergers Commission. Manchester: Manchester University Press, p. 329
(2) Ibid, p. 302
(3) Dale, I. (ed), 2000. Labour Party General Election Manifestos, 1900-1997. London: Routledge, p. 257
(4) Brown, G., 2017. My Life, Our Times. London: The Bodley Head, p. 134
(5) Stelzer, I., 2001. Lectures on Regulatory and Competition Policy. London: Institute of Economic Affairs, p. 77
(6) Wilks, pp. 312-315
