Competition and Markets Authority: Legislative and Institutional Reforms
(5 years, 6 months ago)
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Baroness Hayter of Kentish Town
To ask Her Majesty’s Government what assessment they have made of the letter from the Competition and Markets Authority (CMA) to the Secretary of State for Business, Energy and Industrial Strategy dated 21 February which sets out the CMA’s proposals on legislative and institutional reforms to safeguard the interests of consumers and to maintain and improve public confidence in markets.
Baroness Hayter of Kentish Town (Lab)
My Lords, the Question posed for debate is exactly the one that I want to ask of the Government: what is their response to the CMA’s proposals?
In one sense, I am sorry that we are debating this now, rather than when the CMA was established, when we did try to raise these very issues. My noble friends Lord Whitty and Lord Stevenson and I tried to get a consumer focus written into the CMA’s objectives, as well as its structures, via a consumer panel or board appointments, but we were rebuffed by the coalition Government—even as, in the same breath, they abolished the National Consumer Council. That did not augur well for consumer interests, which is why I welcome the approach set out in the CMA’s letter to the Secretary of State for Business, Energy and Industrial Strategy. I hope he will use the word “Energy” in his title to run with these proposals.
As we said at the time, and as the CMA chair has said, competition is not an end in itself but a tool to serve the intended beneficiaries: consumers. Although without competition, consumers are disadvantaged, if not completely ripped off, a simple economic analysis of markets without measuring consumer detriment simply is not enough—as the long-suffering public know, with higher prices and unfair practices. As the noble Lord, Lord Tyrie, wryly muses:
“Adam Smith’s invisible hand appears rather idle”.
There are particular reasons why we need regulators —or the law—to protect consumers: sometimes because there are monopolies but sometimes because of the specialist nature of the providers—doctors and lawyers come to mind. Often, though, regulators are needed where the individual consumer cannot challenge the provider themselves—unlike with a broken table or a faulty car, where the consumer can see the problem and knows who sold the goods to them. With many goods and services, the imbalance between consumer and provider is immense, particularly where consumers rarely make a purchase—houses and pensions come to mind; where the consequences are long term or invisible to the client, as with will writers and surveyors; where buyers cannot shop around for quality or price—letting agents, lawyers and e-commerce are examples; or where the mischief is so large that no individual can take on the system, such as when Volkswagen cheated to make cars look less polluting than they were. Drivers bought them in good faith, but they were actually mis-sold those cars. But what happened in the UK, as opposed to the States? There was no action here and no compensation for consumers, whose car resale value promptly dropped.
At present, the CMA can only address consumer detriment caused by an adverse effect on competition, not by gross mis-selling or unfair contracts. I recently won a case at the Advertising Standards Authority in which a so-called “treatment” for dementia had been advertised, but all that happened after I won was that the ads could no longer appear. There was no fine on the company. No one was responsible for contacting people who had bought these junk products, and there was no compensation for purchasers.
We need a regulator that will step in to protect all consumers from those who break the law. The current proposals in the letter to the Secretary of State would give the CMA the power to fine firms that flout consumer law.
We have debated past CMA failures in this House before, particularly in relation to secondary ticketing, where the CMA originally failed to measure the consumer detriment or to grasp that, in such a market, only it could act. I am pleased to say that more recently, it has applied for an injunction to stop Viagogo’s unacceptable behaviour. However, if it had had the power to fine earlier, it could have acted more quickly, cheaply and decisively than it could via drawn-out court processes. Although I am sure that Viagogo could have absorbed any civil fine, given its lucrative but dishonest practices, the threat of personal disqualification might have made the difference. Similarly, the CMA had to embark on lengthy enforcement against the care home company Sunrise Senior Living before securing a £2 million settlement for the inflated costs in T&Cs. However, the new proposals would have given the CMA interim measures to protect vulnerable consumers from unfair practices and even award compensation.
Another example is medicine, where pharmaceutical companies’ control of prices is wholly unchallengeable by individual patients, who either bear the costs through higher taxes for the NHS, the bulk purchaser, or lose because NICE feels the drugs are too expensive to prescribe. Indeed, even the bulk purchaser, the NHS, is weak in the face of determined pharmaceutical companies. The CMA’s involvement over Phenytoin suggests that the NHS might be losing some £200 million a year through such unfair pricing.
With unfair contracts, individual consumers cannot challenge the system, so a robust regulator is needed to stand in their shoes, but the CMA has lacked the tools to put the consumer centre stage, with its hitherto narrow focus on competition and process rather than practical outcomes meaning that consumer detriment goes unchallenged. So I strongly welcome the proposal for a new duty to make the economic interests of consumers and their protection from detriment paramount. This should always have been the objective, as any attempt to regulate markets should be to safeguard consumers. However, many regulators appear closer to the providers—the regulated community—than end users.
I have spoken in the House before about the Government’s Regulators’ Code which, as I recall, speaks of working with the regulated community but not with consumers. The National Consumer Federation’s Consumer Charter for Regulators is vital here. As it says:
“The main purpose of regulation is to promote and protect the interests of consumers … where market forces alone would not deliver the best outcome”.
So consumers must be at the heart of regulation. This is where the new CMA approach is brilliant, along with its focus on enforcement, including legal powers to order remedies, civil fines for individuals and, vitally, the disqualification of company directors for breaches of consumer law, which can already happen for competition law breaches. Just as consumers will pursue complaints only where there is the possibility of redress, company directors will prioritise compliance only where their own position is at risk—and potential disqualification is a meaningful risk.
It is no surprise that consumer representatives have welcomed these proposals, with Which? commenting:
“Giving the regulator … a duty to put consumers first will help tackle the imbalance of a system that … worked in favour of powerful businesses rather than consumers”.
Citizens Advice says the proposals are,
“strong stuff ... and great to see”.
Both groups’ eyes, however, are on the Government, who need to ensure that these proposals are swiftly implemented to protect consumers.
Consumer confidence in some markets is shockingly low, with only one-third trusting gas and electricity suppliers, the very markets supposedly overseen by regulation. These CMA proposals appear when the public hardly trust big providers or the machinery of the state to protect them. As the noble Lord, Lord Tyrie, says, the CMA proposals are,
“taking place against the backdrop of an erosion of trust”.
The Government should heed his warning. Without these changes, public dissatisfaction will only grow, so I urge the Minister today to give a positive response from the Government and an undertaking to act rapidly to implement these proposals.
Baroness Neville-Rolfe (Con)
My Lords, this debate is on an important subject—namely, how to improve the UK’s regulatory regime on competition and consumer law. The Secretary of State asked the new chairman of the CMA to outline ways in which this might be improved, and today we are discussing the latter’s ideas. I should register my interest, notably as a company director outside the FTSE 100 in tech services and banking.
I am grateful to the noble Baroness, Lady Hayter, for proposing this debate. She and I worked together on the Consumer Rights Act 2015, which ushered in some important consumer safeguards, not least in the digital content area and on secondary ticketing, which she mentioned and which was a long story. I am not sure that the new rules have had time to settle in, as new laws always take time, and I disagree with a number of things that she said.
Responding to consumer needs has underpinned my whole career. I worked on the Citizen’s Charter, which was about making government measure and act on feedback about its services. Then I was at Tesco for over 15 years, where objective data from consumers—we called them customers—were always the harbinger of success or failure. If you looked after the consumer, you were successful.
I am not convinced that more legislation now is the best way ahead, not least because the costs get passed on to the consumer. We have already seen some adverse impacts from the energy price cap, which was imposed against the advice of the CMA, and we do not know whether we will be in or out of the European Union and its laws in the months and years ahead.
I am very glad that we will hear from the noble Lord, Lord Tyrie. On one point—the final recommendation in his letter—I agree unequivocally. The package as a whole, and indeed any fundamental reform of the regime, should be submitted to open and rigorous external scrutiny.
I also believe that before embarking on new laws—there is a great washing line of new proposals in the CMA document, from new duties and director responsibilities to enhanced penalties—we should always look carefully at what already exists, whether it is managed well and how improvements can be made.
Let us take local government. I am unfashionable in valuing the work done by local authorities, which are close to citizens and know local businesses and local rogues. Trading standards have been persistently unappreciated and starved of funding, but they represent good value for money. I know from the work I have done with them—for example, on online and offline counterfeiting when I was the IP Minister—that there are multiple benefits compared with the relatively small sums spent on that in local government.
I have attended many tutorials and seminars on competition and am convinced that Adam Smith—another reference—was right. Competition is required if a capitalist society is to operate as well as it can for the benefit of all. Recognition of the advantages of competition is what distinguishes a capitalist society from a socialist one, with the latter’s preference for nationalisation and, hence, monopoly. The results are manifest in the much greater economic success of capitalist societies. Oddly, the best recent examples are China and India, which ditched most aspects of socialist economics and consequently made extraordinary progress.
In some areas of life, strong competition comes about naturally, but that is not the case everywhere. It is more or less universally acknowledged that there is a need for a public body to investigate cases where competition has or might become weakened to the detriment of others—notably consumers. The mechanism by which these needs are met in the UK is the CMA. I think we are all agreed that it has an important job and, that being so, it is sensible to examine whether that job could be done more effectively. Whether it was ideal to ask the body in question to conduct such a review is another matter. Most bodies consider that the world would be better if they had more powers and, to nobody’s surprise, that is what the CMA chairman’s letter proposes. It might have been better to ask an outsider to make recommendations.
One component of the CMA’s powers has always concerned me—the fact that in some matters it acts as both the investigating body and the judge issuing fines and so on. One understands why the CMA came to be established in that way, since it largely mirrors the equivalent powers enjoyed by the European Commission under the EU treaties. It has also taken steps to mitigate the dangers of this dual role. However, when all is said and done, in some cases the CMA acts as both prosecutor and judge. I will share with the House some of my own experiences when I was a Tesco executive.
In 2002-03, the British dairy industry was going bust. There were many comments in the press and indeed by Ministers of the Crown to the effect that something must be done and that the supermarkets were to blame. The farmers came to see the top people at Tesco and they—a very hard-nosed bunch—were convinced from the figures that the industry was unsustainable. They regarded it as their moral duty to do something about it. They agreed quite independently to implement price increases, from which all or most of the benefit would go to dairy farmers. Other super- markets followed suit.
In due course, the OFT claimed that what had happened, with everyone raising their prices together, constituted a cartel and it sought to fine Tesco and others vast sums—in Tesco’s case approaching £100 million. I suggest that even if the law was, strictly, broken, this ought to have been regarded as a technical breach, since it had little relation to people meeting in secret to set prices. Everything happened in the full glare of publicity and for motives which many had accepted were worthy.
The OFT showed no signs of appreciating, still less accepting, the point. Instead, it proceeded with unnecessary vigour, not recognisable from the points that the noble Baroness, Lady Hayter, made. Our legal advisers recommended going quietly and paying up. They usually do. The other main supermarkets no doubt received the same advice and acted on it, since they pleaded guilty. That is an indictment of the system. We did not do so, for one reason. The CEO and, indeed, all of us were so incensed by the idea that we had taken illegal steps to cheat our customers that he ordered us to fight every inch of the way. Slowly the case unravelled. The charges against us were dropped one by one. Eventually, we reluctantly accepted one low-level charge and a fine well below £10 million on a dairy product.
The CMA has long since taken over from the OFT, but I think that that episode should have taught it that juggling the role of judge and jury is hard. It shows how difficult it is for investigators to stand back and appreciate that their initial enthusiasm might have been unbalanced.
It is salutary to look at the letter that we are discussing in the light of that example. Its most prominent proposal is that an extra provision should be added to the statute making it clear that the overriding duty of the CMA should be to consumers. Reflecting on that suggestion, I suspect that, had it been in place when our milk case was live, it would have undermined Tesco’s position. Justice, I suggest, can need many factors to be weighed, and the balance between them can vary in ways that cannot be foreseen. Seeking to give one factor overriding importance risks skewing investigations and imposing an intolerable burden on businesses—or, of course, driving them overseas if they are mobile.
An existing safeguard for those investigated by the CMA is the right of appeal to the Competition Appeal Tribunal; here the letter suggests what amounts to a clipping of the tribunal’s wings. I think we should reflect long and hard before accepting a proposal from one body that a second one, the function of which is to review decisions taken by the first, should have its powers trimmed.
Effective competition is essential if the economy is to operate to everyone’s advantage. Abuses need to be challenged and stopped, and the body charged with defending competition needs powers adequate to its remit. But all bodies—indeed all people—have a bias in their own favour. That is why the courts have rightly developed doctrines to eliminate bias from their proceedings. These safeguards are as important in matters of competition as anywhere else.
Baroness Crawley (Lab)
My Lords, it is a pleasure to follow the noble Baroness, especially in her enthusiasm for trading standards. As a past president of the Chartered Trading Standards Institute, I am pleased to be taking part in this timely QSD and delighted to be supporting my noble friend Lady Hayter, whose expertise in this area is highly respected across the House.
The publication of the letter from the noble Lord, Lord Tyrie, chairman of the CMA, to the Secretary of State for BEIS on 21 February was greeted, if not with the champagne-popping excitement seen in Royal Windsor this week, then at least with extremely positive and encouraging responses from the competition and consumer protection community in the UK, including trading standards. I repeat my noble friend’s Question: what is the Government’s response to the letter from the noble Lord, Lord Tyrie?
These proposals for reform of the competition and consumer protection regimes of the CMA are far-reaching and considerable, significantly seeking to place an overriding statutory duty to treat the interests of consumers as paramount. So say all of us. In particular, the proposals wish to align powers and penalties in consumer cases with those of competition law, such that the CMA itself can order the cessation of activities without the need for court action and, in tandem, give the CMA the ability to administratively fine firms up to 10% of turnover where required.
The proposals also give the CMA the power to order the cessation of practices that harm consumers, on an interim basis, subject to legal review. As the noble Lord, Lord Tyrie, says in his letter:
“The central challenge is that, despite relatively recent legislative changes, the UK has an analogue system of competition and consumer law in a digital age”.
The letter goes on to seek statutorily to enshrine the post-2012 landscape arrangements for the division of responsibilities for consumer law enforcement between the CMA and trading standards. I was involved in that division of responsibilities as chair of the Consumer Codes Approval Scheme, which took over those responsibilities from the OFT; it certainly seemed to make sense at the time to use that process to alleviate consumer detriment.
Having spoken to colleagues at the Chartered Trading Standards Institute, I know that they strongly support the proposals in front of us from the CMA to have, as a statutory duty, the interests of consumers as paramount in its decision-making. They also support the statutory enshrinement of the distinction of current roles in the national enforcement framework between the CMA and trading standards. However, the tricky bit for the Chartered Trading Standards Institute comes with the proposal for aligning the CMA’s current powers on competition issues with its consumer enforcement role—in particular, the powers to fine and seek cessation of practices on an administrative basis.
I believe that the CTSI’s concerns arise from the fact that there are distinct differences between the CMA’s competition and consumer roles, especially as, on the consumer side, there currently exists a system of local and national enforcement through trading standards. This is not the case for competition law, and the Tyrie letter does not make clear what the impact of CMA administrative actions and decisions for consumer enforcement would be on trading standards’ decision-making and enforcement choices. Perhaps the Minister could write to me on how the Government see this working out, especially in the light of the highly overstretched and underfinanced workforce within local authority trading standards departments.
While welcoming these proposals, I cannot help but think that, in drawing up the CMA’s future architecture, the one issue that will impact it more than anything else is hardly mentioned. This is the dog that does not bark at the elephant in the room—which is, of course, Brexit. Page 1 of the letter states that:
“The UK is widely held to be an excellent place to do business”.
I would add, “Yes, of course, certainly until Brexit”. On page 2, the letter exhorts business not to engage in anti-competitive or unfair trading practices. I would add that it will be much more difficult to clamp down on that bad practice—an example is given in the letter of “gaming the system”—when businesses in the post-Brexit world, if we come to that, will be obliged to do everything in their power to attract new trade opportunities to make up for leaving the EU.
On page 3 of the letter Brexit is again only a footnote, as it reminds us:
“Brexit, too, poses challenges for the CMA, not least from a greater workload of large, complex cases previously reserved to the European Commission, and the assumption of responsibility for monitoring and enforcing State aid rules”.
To say that Brexit is a “challenge” for the CMA is rather like saying that climbing Everest in stilettos is a challenge. As Carl Mortished said in his piece on 6 March in the Evening Standard,
“the EU competition commissioner … was able to resist powerful politicians”—
I presume he means national politicians.
“However, standing alone and outside the EU, Tyrie may not find it easy to attack monopolists when our Brexited government is desperate to persuade foreign mega-bucks to invest more in Britain”.
And of course we live in “Trump trade” times, which does not help these reforms either.
The CMA, in another understated footnote on page 8, suggests:
“The CMA’s capacity to give priority to this”,
reforming,
“work would be impeded by a ‘no deal’ Brexit”.
Well, so say all of us. Do the Government agree with the CMA in this regard?
In conclusion, these are excellent proposals, launched at a uniquely uncertain time for the country and its place in the world. While I wish the CMA well in its necessary future planning, I am sure that none of us, especially the noble Lord, Lord Tyrie, underestimates the scale of the economic and trade duress that UK business and consumers will face in the near future if we are outside the European Union.
Baroness Altmann (Con)
It is a pleasure to follow the noble Baroness, Lady Crawley. I thank the noble Baroness, Lady Hayter, for securing this important debate on an issue in which I have always taken great interest. The UK has one of the strongest consumer rights frameworks in the world but, as consumer group Which?, with its extensive experience of campaigning on behalf of consumers for many years, has highlighted, inadequate enforcement systems are too often preventing those rights from being enjoyed. The asymmetry of information between customers and businesses is well documented, especially in areas that I am most familiar with: financial products and services. I refer noble Lords to my registered interests.
I agree with the noble Baroness, Lady Hayter, that there are many instances of important one-off purchases, and the power of consumers is too often worryingly weak. At a time when trust in institutions, big business and the political establishment seems to have fallen dramatically and public dissatisfaction is rising, it seems more important than ever that the Government and the business community ensure that consumers have confidence that their rights will be enforced in practice, and that they will be effectively recompensed if things go wrong. The rise in populism, with people feeling that the system is stacked against them, can be aggravated by failures in consumer protection, or by claims that they are being protected that turn out not to be effective in practice. I applaud the Government for their Modernising Consumer Markets Green Paper, and welcome the recognition that this issue requires reform. I also welcome the work of the noble Lord, Lord Tyrie, for the Competition and Markets Authority, proposing important reforms to legislation and consumer protection.
I hope the Minister can give us further information on the Government’s intentions to act quickly; to improve the powers of the CMA to both gather and demand information; to require companies to co-operate with their investigations; and to enforce consumer protections and levy adequate deterrent fines, as so rightly pointed out in the letter from the noble Lord, Lord Tyrie. Can the Minister assure the House that the department agrees with the CMA proposals that the consumer interest is vital and needs to be at the heart of its work?
Unfortunately, the current system relies on local authorities’ trading standards services, which, according to Which?, account for 75% of public enforcement responsibilities, whether that be for scams, product safety or food labelling. Given the budget constraints of councils, which are already struggling with social care costs, local authorities are often inadequately equipped to cope with such responsibilities. Could the Minister explain to us how the work that the newly established Office for Product Safety and Standards within his department, which is most welcome, will support local authorities?
Indeed, it would be excellent to build on this initiative by having a consumer-focused body concerned with product standards to ensure that they are fit for purpose and not harmful to the public. I absolutely believe that a strong public enforcement regime that protects consumers and provides adequate deterrence to poor practice is needed, along with proper alternative dispute resolution services that consumers can turn to if they need to pursue claims against a business. This could have a central portal, which would really help the public to easily find a place to make their complaint. Currently they are too often passed from pillar to post, and it is just too confusing. If they have a full-time job, for example, they usually do not have the time to do this and will just give up, feeling that the system is against them.
Of course most businesses operate fairly and strive to provide good-value products or services, not least to attract future business. But I have seen first-hand how confusing it can be for consumers to find out the appropriate place to complain to when they have suffered detriment. Most business does not require recompense; it operates well. However, the ombudsman system can be bewilderingly confusing, with different bodies covering different types of complaint. It is important to make it easier for consumers to feel that they are being listened to when things go wrong, which is, as I stress, in the minority of cases, and to see that the Government are taking their treatment seriously.
The Conservatives have always been the party of business, and business is vital for successful economies. I agree with my noble friend Lady Neville-Rolfe that competition is a vital element of successful capitalist economies and of driving better consumer outcomes. But we must also care about how business treats its customers and ensure that it is fair. It is important that consumers’ economic interests and protection from detriment are taken seriously and that earlier, more robust intervention is introduced when it is needed to reassure the public that they will have proper rights of redress.
The letter from the noble Lord, Lord Tyrie, outlines that the CMA’s current statutory duty is,
“to promote competition, both within and outside the UK, for the benefit of consumers”,
which is subtly different from putting consumer interests at the heart of what it does. Currently, it can take more than three years for the CMA to issue binding remedies. It does not have sufficient power to fine firms for failure to comply with its findings. It would also be a good step forward, as the letter says, if the CMA could liaise more directly with business and obtain commitments for improved practice without lengthy investigations on a more formal basis. I believe that most businesses would want to comply.
The CMA has weak enforcement powers. Therefore, it can offer only weak deterrents. It has to take a business to court if it thinks practices are illegal and even if it wins it cannot issue fines. Of course there is always a difficult balancing act between the rights of business to make good profits and the rights of consumers to be treated fairly, with adequate recompense when their rights are violated. The CMA is right to suggest that it should be able to ban directors for breaches of consumer law, for example, not just of competition law. I agree that it is really important to ensure that whistleblowers are compensated and protected properly whenever possible, with anonymity. I hope that my noble friend the Minister will reassure the House how seriously the Government take this issue and offer their response to the letter from the noble Lord, Lord Tyrie.
Lord Turnbull (CB)
My Lords, I congratulate the noble Baroness, Lady Hayter, on promoting this debate, which is both timely and important. It is a pleasure to have something meaningful to get one’s teeth into.
I start by declaring an interest. The CMA is working on two initiatives. First, it is addressing its purpose and what powers it has. These were the subject of the letter from the noble Lord, Lord Tyrie, of 21 February to the Secretary of State in BEIS and are today’s main focus. Secondly, and more mundanely, it is examining whether the barrage of central control regimes that apply to it on pay, promotion, recruitment, appointments, finance, procurement et cetera are optimal for the tasks it faces. I am advising the CMA on this strand. It is work in progress and I have nothing further to add at this stage.
When I saw that the noble Baroness, Lady Hayter, was opening the debate, I wondered which noble Baroness was going to turn up. Would it be the noble Baroness with a long track record in consumer protection, or would she follow the line of the Labour leadership in the other place, seeking greater freedom for the Government to intervene, to back winners—or, more likely, prop up losers—and to respond to lobbying on mergers? I should not have doubted this, actually; I think I knew the answer. I am delighted that she has stayed true to her consumerist instincts and is backing the pro-competition, pro-consumer agenda.
The current competition regime is based on two remarkable Acts: the Competition Act 1998 and the Enterprise Act 2002. The driving force behind both was a Labour Chancellor, Gordon Brown. These Acts embody three principles. First, within the framework set by statute and consistent with the strategic steer provided by the Secretary of State, the CMA should be able to act independently of Ministers. There is an obvious read-across here from the operational independence of the Bank of England. Secondly, decisions should be based on evidence of economic impact on companies, consumers and suppliers, and not be driven by lobbying or ministerial whim. Thirdly, the regime should be stable and predictable.
The proposals set forward by the noble Lord, Lord Tyrie, in his letter do not seek to overturn these principles. They do quite the opposite: they seek to entrench—I think Gordon Brown would have used the phrase “lock in”; that was always his favourite expression —these principles, develop them and make them more effective in practice. These proposals are entirely consistent with the strategic steer that the then Secretary of State for BEIS, Sajid Javid, set out in a letter to the CMA in 2015. In that letter he said:
“We want the CMA to examine markets, new and existing, freely and fearlessly to see how competition can be improved … this Strategic Steer gives the CMA a clear mandate to help government design policy interventions and, when necessary, actively challenge any government rules and regulations if they consider they are negatively affecting competition … The Government is clear that the CMA should remain a strong, independent competition authority”.
I think all those principles remain.
It is natural that a new chair coming in will want to look at the fundamental purposes of the organisation. He has just joined. This is doubly important when it is likely that Brexit will take place in one form or another. In addition to its existing responsibilities, the CMA will take on more and more complex cases for mergers and antitrust enforcements, currently handled in Brussels.
Next, the CMA will become the enforcer of state aid regulations. This will, on occasion, put it head to head with other public authorities, making it more necessary than ever to safeguard its operational independence. Then there is the Furman review, which proposed a new digital markets unit, since it is in the digital space that many of the most pressing issues of consumer protection arise. It could be located within the CMA.
The CMA’s proposals should be examined constructively and I shall highlight some of them. First, there is the placing of an overriding consumer interest duty on the CMA in the courts. The way the current duty is framed can leave the CMA restrained from acting to protect consumers’ interests, unless they are doing so through purely competition-based remedies. This leads logically to the next proposal: to revisit the distinction between phase 1, which is market studies, and phase 2, which is market interventions. The scope of these two phases is different. A market study can identify a consumer detriment, but a subsequent market intervention must clearly address adverse effects on competition before action can be taken. For example, there could be a fully competitive market with no dominant players, though some players within it may adopt practices detrimental to consumers or suppliers. In that case, the CMA’s powers of enforcement are weak, so the right approach may well be to remove the distinction between market studies and market interventions.
Next, the CMA is seeking greater enforcement powers. Where it concludes that consumer law has been breached, it has no powers to order a cessation of illegal practices but must first pursue businesses through the courts to obtain binding remedies. Then there is the issue of individual responsibility. At present, competition law enforcement can result in a fine on a firm, but these fines do not necessarily have any impact on the individuals running those firms. By contrast, the Financial Conduct Authority can impose fines and other sanctions on regulated individuals.
Finally, there are proposals about the fees charged for examining merger proposals. Large companies can spend millions—tens of millions—on an army of advisers, which indicates just how much money they think they will make from these proposals. However, the CMA may charge only a little over £100,000. This is a nonsense. The CMA should be able to recover the full costs of the actions it takes and the effort it puts into examining these mergers. That money should be retained by the CMA and not sent to the Treasury, although the Treasury should retain any of the fines.
I hope these ideas will be taken forward urgently and constructively. Some will require legislation. However, when the Commons adjourns at 4 pm after considering Kew Gardens leases, the excuse that there is no legislative time is pretty thin. The competition regime in the UK has many excellent features, but there are those in politics today who wish to turn the clock back, to bring Ministers and politicians more into the process. I hope that rather going backwards, we will use the CMA’s proposals to move forward, as the noble Baroness, Lady Hayter, has urged. I hope this will be done to enable the CMA to respond more quickly to problems that it identifies.
Lord Whitty (Lab)
My Lords, I join in applauding very much the tone, and much of what was suggested, in the letter sent by the noble Lord, Lord Tyrie, to the Secretary of State. As has been said, the UK has a highly respected competition regime, and has been instrumental in devising the European regime—which has had some successes and some failures. As my noble friend Lady Crawley says, Brexit now presents us with some problems. My sub-committee of the EU Select Committee produced a report relatively recently on competition and state aid post Brexit. It means that the competition authorities here have to take on more resources, because they will have more cases—plus the state aid cases referred to by the noble Lord, Lord Turnbull. It also gives them an opportunity to rethink their role, which I think is what the noble Lord, Lord Tyrie, has done here. I hope that the Minister and the Secretary of State take his propositions seriously.
What is the end of this policy? That is the central point. As my noble friend Lady Hayter says, the end is consumer benefit. Like her, I recall us making that case at the Committee stage of the then Enterprise and Regulatory Reform Bill, which set up the CMA in its present form. We were not properly heard then. We need to be heard now. Even the reference to Adam Smith given by the noble Baroness, Lady Neville-Rolfe, was that the aim of competition is actually the welfare of all. It is a means, not an end. Therefore, it is right that the objectives of the CMA be written in those terms.
I have a number of points, and will also no doubt be tempted to respond to some of those already made. If we are to change the nature of the CMA in the direction that the noble Lord proposes, that has to be reflected in the totality of the regulatory regime on competition and related matters across the board. In other words, it also needs to affect the way we operate the sector regulators in terms of their competition function. That, I think, is an important point. Also, it has to be built into the structure of the CMA. It was, I think, six years ago—God!—that there were suggestions about a panel within the CMA or some other means of reflecting the consumer interest, and that needs to be part of the new thinking. The role of consumer organisations is also important here, not as part of the CMA but as its interlocutors—Citizens Advice, the National Consumer Federation, Which? and, of course, trading standards. I am even tempted to say that the Government should come back and rethink the unfortunate abolition of the statutory consumer basis made under the coalition. I have a slightly personal grudge here; nevertheless, it is sensible to reconsider those issues.
I will put one other thing on the agenda because I am presently conducting a commission looking at the effect of energy companies in their dealings with vulnerable consumers. While an increase in competition usually benefits most consumers, it does not necessarily benefit all of them. Some consumers get left out of whatever process we have. One thing that needs writing into the consumer protection role of the CMA, and the increase in its powers advocated here, should be to pay particular attention to the needs of those who are not quite able to engage with the market, particularly the sophisticated and digitally-driven market that we now have. Whether that comes from questions of capacity or income, we need to pay attention to it.
On the implications of Brexit, as I say, there are possibilities for changing the structure because we no longer have to quite conform with or mirror the European structure. We will need to ensure that the CMA has adequate resources. I am glad to say that its staff have been co-operating with my committee to indicate how they are progressing on that. The noble Lord, Lord Tyrie, referred to speeding up processes. Clearly, one of the complaints about European and national competition regimes is the issue of speed and he made a number of very sensible propositions there. In particular its power on market investigations is, in a sense, a jewel in the crown. Internationally, many other competition regimes do not have that power and it is an important part of its armoury but it is a bit clunky and needs speeding up. Early intervention and direction, and the undertakings sought by the CMA, would make that more effective.
I am not totally sure about the criticism implied in some of the noble Lord’s views on the CAT. I partly agree with the noble Baroness, Lady Neville-Rolfe, but the fact is that all regulators are judge and jury to a certain extent. The issue is whether they are subject to some form of appeal and what the nature of that appeal is. It is true that the CAT has become a bit litigious, or that companies which appeal to it have become over-litigious. Perhaps it could be focused down a bit but the aim should be to enhance and focus the role of the CAT, not make it less effective.
I will not repeat the points made by my noble friend Lady Crawley, and by the noble Baronesses, Lady Altmann and Lady Neville-Rolfe, about trading standards. The national-level activity on consumer protection and abuse of the market has to have a local arm. The reality is that, over the last 10 years, the resources available to local government trading standards have been cut by over 50%—in some places, it is far worse. Unless their local arm of trading standards operates effectively, any individual citizen or small company that feels that they are being abused by companies under consumer protection, or under things such as safety standards, cannot get redress. In most of the country, they are not. That needs to be addressed within the same timescale as we address the CMA’s own role.
The CMA has a number of new challenges. If I may advertise again the products of my sub-committee, in the glory days just before Brexit we produced a report on the challenge of online platforms and the ability of competition authorities across the world to deal with this new form of trading, which is now a dominant form. Markets are difficult to define and whether you are dominant in a market is difficult to define, as is whether you are abusing that dominance. The long-running saga of the European Commission and Google illustrates this. The digital giants are the new oil companies—the equivalent of the Rockefellers of the 1890s—and we need anti-trust legislation to be able to deal with them. Our traditional forms have not really managed to do so. The Googles, Amazons and Facebooks are not necessarily acting in the interests of consumers even though consumers may think that those companies are because, for the most part, they do not pay anything up front. The fact is that the data about consumers is both the product and a currency for that type of company.
The CMA will also need to return to some old issues. I have often thought that the terms “cartel” and “monopoly” do not entirely describe the most usual form of market distortion, which is effectively oligopoly. In so many of our sectors, whether it is in energy, banks, supermarkets, insurance or whatever, there are half a dozen or so companies determining 60% to 70% of the market. Our market laws have not really worked out how to deal with that situation, either in respect of the rest of the market and competition within it, or in respect of consumers.
My last point is simply this. We need to ensure that our competition authorities are up to speed, resourced properly and respected so that they have powers which they can use. The proposals of the noble Lord, Lord Tyrie, move a significant way in the direction of strengthening that intervention. I hope that the Minister will be able to reply today—we will hear from the noble Lord, Lord Tyrie, in a moment—in a very positive way to at least the gist of the direction in which the noble Lord recommends that the Government should go.
Lord Tyrie (Non-Afl)
I am extremely grateful for the support that I have just received from the noble Lord and from a number of other noble Lords around the House. I congratulate the noble Baroness, Lady Hayter, on securing the debate and also of course declare significant interests, both as chair of the CMA and as author of the letter to the Secretary of State to which her Question on the Order Paper refers. It will not surprise anybody if I say that I agree with everything that I have said in my letter—just for the avoidance of doubt. I also want to apologise to the House for missing the opening few moments of the debate.
Some interesting comments have been made, some of which require further thought. There have also been some points of disagreement. Where it is warranted, rather than address those points directly now, I shall come back to them—to the noble Baroness on one, and there may be one or two others.
I think that there is widespread and growing cross-party consensus that competition law and policy are in need of some reform. The legal framework appears to be letting ordinary consumers down. Since the Competition Act was passed more than 20 years ago—here is some of the evidence of the need for reform—profit margins have risen from 20% to 60%; the turnover share of the UK’s largest businesses has risen from 21% to 28%; loyalty penalties for customers in telecoms and financial services alone stand at more than £4 billion a year; and there is price discrimination against the vulnerable in essential services and price gouging by pharmaceutical firms—that much is scarcely in dispute.
Meanwhile, the growth of the digital economy is bringing huge benefits, but it is also making competition and consumer law look increasingly out of date and at risk of being unable to address anti-competitive behaviour before the market moves on and identifies new areas. The existing framework is at risk of being unable to protect millions of previously quite capable and competent consumers who are now vulnerable to exploitation, many of whom are simply time poor and do not have time to address and absorb the huge amount of information on the web required to make good decisions.
When the Secretary of State asked me to undertake this work—he is not a long way away from me at the moment, as a matter of fact—I am sure that it was with some of the points that I have just made in mind. The proposals that I have made are aimed ultimately at preserving, not replacing, an independent competition framework and adapting it to make it more fit for the future and responsive to developments in fast-moving markets and to problems faced by ordinary consumers. There are a large number of proposals in the 44 pages of the letter—it might be the longest letter that I have ever written—and I am very impressed by the number of noble Lords and noble Baronesses around the House who have clearly read it.
In the interests of time, I shall draw noble Lords’ attention to just four of the proposals. First, several new duties are proposed; I shall highlight two in particular. It is proposed that a new duty be imposed on the CMA to ensure that the economic interests of consumers are paramount—several contributions referred to that—and to act more swiftly than we currently do. That should affect the way in which our work is scrutinised in the courts.
Secondly, on the markets regime, changes are proposed that would allow the CMA to order legally binding remedies in markets where competition has been compromised. The scope of that regime needs to be broadened so that it can address a wider range of consumer harm. And it needs teeth, in the form of financial penalties for those who fail to comply with CMA rulings—I think that there was a good deal of support for that.
Thirdly—I think this is an area where there is already widespread agreement in principle—consumer law enforcement needs to be strengthened significantly. When companies break consumer law and rip off consumers with unfair trading practices, or exploit them through unfair contract terms, the CMA currently has to apply to the courts to request them to order the practice to stop. Firms do not get fined and they are no worse off for having broken the law. So, just as it does when it takes on firms engaged in anti-competitive practices, the CMA should be able to decide itself that a firm is breaking consumer law and to order it to stop. It should also be able to fine firms that then flout the law.
The fourth area that I will refer to has also been mentioned by one or two noble Lords. More needs to be done to promote personal responsibility for complying with competition and consumer law. Individuals are far less likely to break the law if they know that they may be held liable for it. The public rightly expect personal responsibility for serious wrongdoing by firms. With that in mind, the proposals include measures to increase board-level responsibility for complying with the law so that both competition and consumer protection are in the minds of company directors. It is also proposed that, for serious breaches of consumer protection law, director disqualification should be a possibility, just as it is for competition law offences.
I have only a couple more points to make, as I have already had the opportunity to make so many points in the letter. All regulators accumulate vested interests; they cluster around regulators. Sometimes they make crucial points. They are also often very effective at getting at Parliament. It is extremely important that we at the CMA all listen to those vested interests, but it is just as important that regulators avoid being captured by them. Certainly, we do not intend to be captured by vested interests in competition law.
I end by asking the Minister to update the House on the Government’s view by responding to a few questions. Does he agree that far-reaching reform to the framework for competition and consumer law is now required? Does he agree that the proposals outlined in the letter are a step in the right direction? If he does, will he tell us how and when the Government will take them forward? Finally, does he agree that we should try to continue with reform to competition law as far as possible on the basis of the cross-party consensus for the legislation that has been in place pretty much since the Labour Government’s introduction of the Enterprise Act a little over 20 years ago? I hope that he can give us some encouragement on that. I certainly think that he has had some encouragement on that last point from a good number of contributions around the House this evening.
Baroness Bowles of Berkhamsted (LD)
My Lords, I too welcome this debate and thank the noble Baroness, Lady Hayter, for securing it. It is a pleasure to follow the noble Lord, Lord Tyrie, and I recommend his speech at the Social Market Foundation earlier today, which I attended. I declare my interest as a director of the London Stock Exchange plc.
The proposals of the noble Lord, Lord Tyrie, are part of a wider review of the competition regime, and the consumer focus also fits with the direction of travel of the inquiries into the FRC and audit, and growing concern over the power of large companies, especially in services, along with new business methods and contracts and new types of dominance and oligopoly, as the noble Lord, Lord Whitty, said.
If there is a generic flaw in the state of our laws concerning companies, it has been in expecting that the public good, or the consumer, can be served in a derivative manner—for example, by promoting competition for the benefit of consumers. It cannot be presumed that competition always serves the public well, when bad practices can be market-wide and indeed driven in that direction by the need to compete. Therefore, I welcome suggestions to have consumer protection powers that mirror those in competition and that, for both consumer protection and competition, the procedures should be capable of collecting more and earlier information and of being swifter in delivery and more effectively enforced.
Given that the noble Lord, Lord Tyrie, has delivered a raft of suggestions and has rightly observed in his letter that further consultation and details will be needed, will the Minister let us know what form of consultation is envisaged? Will it be by the Government, the CMA or both, and when? Will all the proposals be progressed together, or can some be done more quickly?
Several of the proposals would align with practice and developments in competition authorities in other countries, where there is already, to some extent, a track record. The UK has been seen as strong in competition matters and, while that might be true on observing state aid rules and permissiveness for mergers—some would say too true—somehow we have got into the position, laid out by the noble Lord, Lord Tyrie, on page 39 of his letter:
“The UK is not only one of the best jurisdictions for companies to defend a competition case; it is one of the best jurisdictions to lose one”.
That is because the review system allows opening up of the whole case, allowing new evidence even if it could have been submitted sooner to the competition authority. That is not the norm for competition cases in other countries.
Further, our system allows setting aside of remedies until the end of the review, for which procedures have become overly long and have departed from the written procedure that was originally envisaged. If a company loses a case, although the fines available match those in other competition authorities, at 10% of global turnover, the amounts levied have ended up being much lower. With some types of business, the length of the investigation, added to by any review and deferment of remedy, can be sufficient for the company to benefit substantially, taking a substantial market share or playing a part in distorting business practices by establishing new norms or even completing the whole chain of the value cycle in that business. Then, if the fine is small, it can become a price worth paying.
It is a tough call for a regulator to ask simultaneously to have more powers and to prune the scope of legal appeal, but in this instance a good preliminary case to do that has been made. I have some sympathy with the point made by the noble Baroness, Lady Neville-Rolfe, about doing the investigation and being the judge, but that does happen with other regulators as well. What irritated me even more when I had oversight of competition in the EU was the lack of transparency, in terms of not being able to find out what was going on, sometimes even for the business that was under examination—that drove me to go to Luxembourg, to the ECJ, and to sit through the Microsoft tying and bundling case. Actually, I thought the judges did a very good job of digging out the facts, but without that I would really not have had a good understanding of what had been going on, and the public are often left not knowing what has gone on.
Most of the other proposals have two common threads. The first is making the consumer interest specific and stand-alone, enabling bad practice to be dealt with, whether or not it has a competition aspect, and making procedures and remedies the same as under competition cases. I will take a great interest in how that progresses and will measure it against the Australian law of unconscionable conduct in commerce. As I have suggested before in debates about corporate liability, it would be a good idea to have some similar catch-all available in our law. I want all bad behaviour in commerce to be caught, certainly for consumer protection but also between other organisations or businesses.
The second thread is enhanced powers, applicable for both consumer and competition matters, ranging from greater information-gathering powers to more flexible procedures regarding market studies and investigations that do not tie into an inevitably long timetable. This is important considering the speed and innovation of modern business, particularly in the digital age. But how “Get it done quickly” is to translate into law while allowing thoroughness will need some care, more resources and rapid appointments to panels.
The idea of having a Financial Services and Markets Act Section 166-type inspection, paid for by the company, is floated as a possible additional tool and a way of getting expertise. This idea was put forward in the context of the Kingman and CMA reviews of the FRC and audit, and it pops up here as well. It needs examination as to how and when it would be used so that it does not get out of hand, as did the monitoring trustee arrangements that the EU Commission put in place for Microsoft. I recall criticising that arrangement for creating a “Microsoft regulator”, and in fact the Commission lost that part of the case at the ECJ. We therefore need to examine whether, because of the nature of business, it has got to a situation where we are saying that we need to create mini internal regulators, but Section 166 may have become overly fashionable.
I agree with requiring more individual responsibility, and that must cover senior managers and executive committees, not just boards. I am pleased to see the suggestion of more use of director disqualification; again, I have recommended several times that when there is a serious finding in business governance and culture, there should be an automatic review of whether the directors should be recommended to the courts for disqualification. It is possible for the Secretary of State to instigate investigations, but that should be kept for special cases. In general, it should not have to rely on government intervention.
I concur with other noble Lords that this is a robust set of proposals, and they have my support and that of these Benches.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)
My Lords, I thank the noble Baroness, Lady Hayter, for introducing this timely debate. Like the noble Lord, Lord Turnbull, I was intrigued as to which Lady Hayter we would see but, as my noble friend Lord Tyrie stressed, we are happy that it is the Lady Hayter who wishes to look to the consumer benefit, does not look at state intervention, as some of her colleagues in another place might want, and generally goes along with the broad thrust of the suggestions put forward by my noble friend, if I may call him that—I appreciate that he no longer sits on our Benches.
Noble Lords will be pleased to hear that although they will have noticed a large number of yellow notes coming to me, I will not respond in detail to every single point made in this debate; time does not allow me to do so. However, in responding I can to some extent give the broad thrust of some of the Government’s views about where we should go and what we should be doing. I shall take the four questions that my noble friend Lord Tyrie put towards the end of his speech, when he asked whether far-reaching reform is necessary and whether the letter is a step in the right direction. Crucially, he then asked “when?”, which is always one of the hardest questions to respond to at the Dispatch Box, and whether we should do more to do this with cross-party consensus. Following the debate, I think my noble friend will agree that there is a considerable degree of cross-party consensus on his letter. My noble friend himself referred to the letter, as did many other noble Lords, and I do not think anyone said that it was going down the completely wrong track. However, as my noble friend said in the second paragraph of his letter:
“The attached provides preliminary advice. Work is continuing at the CMA on a number of these proposals”.
He described the letter as long; I think it is six pages long, but a further 30 or 40 pages were attached to it. There is a great deal to do there but a great deal more for the CMA, the department, government and others to do. We want to look at that in due course and we certainly want to respond in the proper way.
Just as my noble friends Lady Neville-Rolfe and Lady Altmann said, we believe that competition is crucial and that it should be the lifeblood of our economy. It brings clear benefits for consumers. Businesses that have to compete against each other are incentivised to offer goods and services to consumers that provide greater choice, better quality and lower prices. Consumers themselves benefit from strong markets subject to healthy competition and effective consumer protection rules, and that is what we want to see.
With the Competition and Markets Authority, we have a well-developed set of consumer rights, which are some of the strongest in the world. They have been developed over the years with a degree of cross-party support—I appreciate what the noble Baroness and the noble Lord, Lord Whitty, both of whom were involved in the passage of the 2015 Act—had to say. It was recognised in 2015 that the United Kingdom was ahead of the rest of the European Union in introducing specific rights and remedies for a great many services, particularly on digital content. I shall say a little more about that.
As my noble friend said, any system that regulates markets needs to ensure that it keeps pace with developments in that market, and a dynamic market requires a dynamic competition regime. We have been at the forefront of global reforms, promoting open markets that enable growth and improve consumer outcomes, and we intend to remain on the front foot. That is why we acted, first by publishing the consumer Green Paper last year to which my noble friend Lady Neville-Rolfe referred, which raised fundamental questions about how the Government could ensure that markets work for all consumers, following that up with the consumer White Paper to be issued later this year, focusing on loyalty penalties, and the independent review of digital competition, which reported in March, seeking the views of my noble friend Lord Tyrie on strengthening the competition and consumer enforcement regime.
Following that, and given the Government’s ambition to ensure that we have a competition regime fit for the future, my right honourable friend the Secretary of State asked my noble friend to suggest reforms to the competition and consumer enforcement regime. He responded with the letter dated 21 February, published on 25 February, which we in government welcome as an encouraging step in the right direction that provides a firm basis for further work by both the CMA and the Government.
As all noble Lords who have read the letter and the attachment know, the proposals are wide-ranging and ambitious. They include a greater focus on consumers by introducing a new statutory duty on the CMA to treat the economic interests of consumers and their protection from detriment as paramount; swifter investigation through a new statutory requirement on the CMA to conduct its investigations swiftly, while respecting parties’ rights of defence; stronger powers on competition and consumer enforcement; and a wider set of suggestions, including civil fines for individuals, board-level responsibility for competition and added duties for auditors.
I give an assurance that we intend to consult in due course. The debate introduced by the noble Baroness, Lady Hayter, is a useful start in that direction.
We are also committed to ensuring that those markets work for all. That is why we published the Green Paper last year, looking at how to modernise the approach taken by the CMA and regulators to safeguard consumer rights and protect vulnerable consumers. We want to ensure that our regulatory, competition and enforcement regimes are suitable for the modern economy and the modern consumer. The consumer Green Paper announced that review of alternative dispute resolution, including proposals to strengthen enforcement nationally while maintaining the strong local protections that the noble Baroness, Lady Crawley, with her experience of trading standards, and the noble Lord, Lord Whitty, both believe are important. It announced the smart data review to consider giving consumers more control over their usage data to help them get better deals; performance metrics for consumers in each sector, including information on price differentials; and the creation of a consumer forum comprising Ministers and regulators to ensure joined-up working while respecting regulatory independence.
The consumer White Paper will also set out proposals for the next phase of action to strengthen the consumer regime. The proposals we will set out in our White Paper are based on a clear set of principles. Competition should be central to our approach—the Government should always look to intervene to remove barriers to competition where they arise—but consumers should be able to get redress when things go wrong, so consumer rights should be enforced effectively. Consumers should benefit from new technology and new business models, with competition and regulation working in the consumer interest.
I am running out of time but I wanted to touch on what the noble Baroness, Lady Crawley, referred to as the dog not barking at the elephant in the room—a rather confusing picture but there we are. To touch briefly on EU exit, perhaps I may make clear how we believe that our competition regime would operate post exit.
We will leave the European competition regime at the point of EU exit. The CMA and other regulators will take on responsibility for all anti-trust and merger cases that affect UK markets. Subject to parliamentary approval, the CMA will also take on the role of the UK’s state aid regulator.
In a deal scenario, the current withdrawal agreement makes provision for an implementation period, during which the status quo in competition will be preserved. This means that the CMA and the European Commission will continue to share jurisdiction for the enforcement of anti-trust and merger rules. During the implementation period, we would seek to negotiate comprehensive co-operation arrangements with the EU as part of the future economic partnership, alongside commitments to maintain and enforce effective competition laws. In a no-deal scenario, which we do not believe will happen, the CMA would immediately take jurisdiction over all cases affecting the UK.
My time is running out so I end by thanking the noble Baroness, Lady Hayter, and, more importantly, my noble friend Lord Tyrie for his letter and for what he described as preliminary advice. I assure him that we received that letter; as he knows, my right honourable friend was at its launch, and he and other colleagues in the department take it seriously. We will consider it and, as I said, we intend to consult on it.