This post is based on my contributions at two events this week on the subject of how Britain’s Labour government thinks about competition, growth and the CMA.
The first was a discussion at the British Institute of International and Comparative Law (BIICL) in London and the second was at the GCR Law Leaders Europe conference in Brussels. Thank you very much to Liza Lovdahl Gormsen and Andrea Gomes da Silva for inviting me to take part in them.
There is a caricature of the UK government’s approach to competition, which is that it has fallen for a lot of lobbying that corporate consolidation is an easy route to growth and that the CMA is an obstacle to this.
But that is not how ministers talk about competition. Here is the Business Secretary, Jonathan Reynolds:
This government believes in promoting and protecting competition – that is fundamental to our growth mission and Britain’s modern Industrial Strategy.
What about the idea that there is a choice between competition and investment? Here is the Chancellor, Rachel Reeves:
Competitive markets are more important than ever for attracting investment into the UK and driving economic growth…
When the government’s Modern Industrial Strategy was published in June it included a commitment to:
Unlock the full potential of competition to increase market dynamism and economic growth.
And the strategy specifically called out the role of the CMA in giving advice to government on how to boost competition and innovation in the sectors it wants to prioritise.
So how do we reconcile all this with the accusations that the government is soft-pedalling competition policy, protecting incumbents and politicising the CMA?
To start with, at risk of stating the obvious, competition and the CMA are not the same thing. One is a process of rivalry between businesses; the other is a non-ministerial government department. You can believe that the former is a great driver of innovation, productivity and growth, while also having questions about how the latter is fulfilling its statutory functions.
Parliament tends to delegate functions to a non-ministerial department when three conditions are met. First, the issues involved are technical, so politicians are not well qualified to decide them. Second, they are not routinely the subject of controversy, so they rarely impose political costs on the government. And third, even when controversies do arise, the government thinks that accepting an occasional unpopular decision is a price worth paying in order to meet a shared policy objective.
Importantly, this does not mean that controversies never arise, but that they do not do so routinely. One reason we still talk about the prohibition of Siemens/Alstom six years later is that there has not been a comparable case since then. An independent competition authority can survive periodic controversies if it then has long periods of stability in which to build its democratic legitimacy and its reputation. But what it cannot survive is being routinely the subject of political controversy, because then politicians begin to worry that the authority is not helping it achieve a shared policy objective; instead, they worry it is pursuing its own policy objective that runs counter to that of the government. That is what the government began to fear about the CMA, and there are two particular policy trade-offs which they worried about and which continue to be relevant.
The first is on corporate investment. The government’s overriding policy objective is to increase economic growth and it believes that increasing corporate investment is critical to this. Since Brexit, there are many international companies whose main (or even sole) experience of the British state is dealing with the CMA, so the CMA began to assume outsize importance as a shop window for the UK, and the government has received repeated complaints about it: where it is asserting jurisdiction, how long it takes and what it is like to deal with (importantly, not just what decision it reaches at the end of a case).
The second trade-off is on foreign policy. When the UK’s independent competition regime was established by my old boss Gordon Brown, the main targets of enforcement were domestic incumbents, and this meant a robust competition policy was consistent with our foreign policy. Our international allies wanted us to open up our markets and we wanted them to open up theirs. But today the main targets of enforcement appear to be big American companies, and this comes just when the transatlantic alliance is under the most strain in eighty years. In that context, it is impossible for the government to ignore the geopolitical implications of the CMA’s enforcement.
To be fair, it is not the CMA’s fault that these problems have emerged. Brexit was not its idea, and the government at the time did not tell it – either through legislation or a strategic steer – that it should take a different approach to international deals than to domestic ones. If anything, it was encouraged at first to take a bigger international role. As late as November 2023, the Conservative government published a strategic steer encouraging the CMA to “act as a thought leader at home and abroad…using its post-Brexit role to shape the international debate and response on key cross-border issues.”
Today, ministers want competitive markets and they want the CMA to decide its cases independently – but they also want confidence that the CMA’s overall policy stance does not run counter to the government’s overall policy objectives. The new strategic steer is about trying to ensure that alignment, and that the alignment is visible internationally.
That is why, in a nutshell, the strategic steer tells the CMA to:
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- focus on cases where it can have the biggest impact for UK consumers;
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- when looking at international deals, take into account what other authorities are doing;
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- where it finds problems, take a proportionate approach to remedying them; and
- don’t deter investment, either by its substantive decisions or by the signals it sends about what it’s like dealing with UK regulators.
The CMA and the government have moved on all of these issues: reviewing the jurisdictional thresholds; signalling a more pragmatic approach to global deals; reviewing the mergers remedies guidance, and lots of process changes to make the CMA easier to deal with.
The government certainly seems to be recognising the CMA’s efforts. The Business Secretary has said:
I know Sarah [Cardell] and the CMA have set out their plans to deliver real, meaningful reforms to the merger control processes already today. Its eyes are trained firmly on more direct engagement with businesses. On speeding up its decision-making to deliver more certainty for investors. On adopting a faster, more agile approach to protecting competition.
I fully endorse these measures because this Government believes in effective, independent institutions. In promoting competition and protecting competition – that is fundamental to our growth mission. And with the current CMA team in place, we want to support them every step of the way in the changes they’re making.
The Chancellor has said:
We fully support the CMA’s independence and welcome the steps it has already taken to act swiftly, predictably, independently, and proportionately to promote competition, protect consumers and strengthen our economy.
That suggests that the political risk to the CMA could be reducing – but it will take time for perceptions to settle down, both about what the CMA is like to deal with and what the government’s appetite is for political intervention. Companies still report quite mixed experiences of dealing with the CMA; and it is quite hard to tell a chief executive that the government is unlikely to intervene in the work of the CMA if the front page of the FT appears to suggest otherwise.
And as there is not currently a large pile of Phase 2 merger cases, it may be some time before there is a big enough bank of evidence for the CMA’s stakeholders to be able to judge what the ‘new normal’ really looks like.
