Competition and Markets Authority: Legislative and Institutional Reforms

Baroness Neville-Rolfe Excerpts

Wednesday 8th May 2019 Lords Chamber

[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.