Penrose Review: UK Competition and Consumer Policy

Debate between Cherilyn Mackrory and John Penrose

Tuesday 8th March 2022 Westminster Hall

[John Penrose (Weston-super-Mare) (Con)]

I beg to move,

That this House has considered UK competition and consumer policy in response to the Penrose review.

It is good to have you looking after us, Mr Efford, to ensure that we do not misbehave during the course of the debate. It is good to see you in the Chair.

Just over a year ago, I was commissioned to write a report by the Treasury and the Department for Business, Energy and Industrial Strategy. It came out almost exactly a year ago and it is called, “Power To The People”. It is about competition policy and was produced at the request of the Government. A year after publication, I thought it was reasonably sensible to think that we might want to have a look at what has happened as a result of my recommendations—which ones have happened and which ones have not—hoping perhaps to goad, tease or otherwise persuade my hon. Friend the Minister to be as indiscreet as he possibly can be about what might happen in future, to fill in any gaps, and discuss the recommendations that have not yet taken place.

I will summarise briefly progress on implementing some of the recommendations in the report in the intervening year and I will focus fairly straightforwardly on the things that have not happened yet, so that the Minister has a text from which to work—if I may put it that way—and on the gaps that remain. To be fair, although I do not want to overclaim on this, it is true to say that there has been a reasonable amount of progress across Government on some of the recommendations in my report.

For example, there have been a series of consultations and commitments from the Competition and Markets Authority about the kind of changes that it wants to make to its internal processes and the way it works. One of the central recommendations in the report is that the CMA needs stronger consumer powers—upgraded to match its anti-trust competition powers—and a whole series of other things necessary for it to move faster to judgments in individual cases much more quickly. Ideally, in most cases—the easier cases—that should be within days or months, rather than in the current parlance, when things can easily run into years; we need faster and more certain decisions.

The CMA is supposed to upgrade its capability to become what I termed the “micro-economic sibling” to the Bank of England’s macroeconomic work. In other words, every time the Bank of England talks about the macro economy, the CMA should have a public role in putting forward our progress in creating supply-side reforms to improve competition in individual markets and in individual parts of the country. As we all know, our country has a real problem with declining levels of productivity and of competitiveness the further away from the M25 one travels.

The report therefore makes a series of recommendations, some prompting a series of consultations on internal reforms to the CMA, which are very welcome. There are things like the

“micro-economic sibling for the Bank of England”,

which I have just mentioned, which has been declared and is due to be set up. There have also been declarations that the CMA’s consumer powers will be upgraded in due course. We will need primary legislation for that, but there has been extensive consultation on it. There will also be things such as stronger penalties for companies that do not comply with data requests and so forth, seeking to slow down the progress of any competition cases. So, all—or mostly—good news in that area at least.

The CMA has also established something called the digital markets unit, the DMU, which will be absolutely essential to future operations in ensuring that we can deal with consumer detriment created by digital network monopolies—the big FANGs of Facebook, Amazon, Netflix and Google. The DMU is now in operation, but in shadow form, because it does not have any of the necessary legislated powers that it requires. It has at least started. There has also been an increase in the CMA’s resources post Brexit because, as we left the UK, we had to have a stronger domestic pro-competition set of institutions, otherwise all the things that had been happening in Brussels, in the EU’s competition world, would not have been coped with, so they were repatriated.

Equally, the ideas in the chapter on economic regulators are about trying to reduce the overall role of such regulators over time. We should be trying to normalise as much of the markets that they run as possible. There is no intrinsic reason why, for example, energy, telecommunications or others cannot be mostly normal and as usual, as run of the mill as buying a loaf of bread or a pint of milk. We do not need an economic regulator to protect us when we do that. There are large chunks of these markets where we could be just as protected by normal consumer protection laws, and would not need an economic regulator, except for the bits of those markets that are fundamentally based around network monopolies.

Every single one of the economically regulated sectors in our economy—telecoms, energy, water or any of the others—all have network monopolies at their core, whether it is electricity distribution, the national grid, local electricity distribution grids, gas pipes, water pipes or whatever it might be. There is a network monopoly at the core, and those are inherently less competitive. We cannot get them to work in the normal way, and there has to be a residual level of economic regulation on those networks. Perhaps there are some deeply embedded and hard-to-solve consumer detriments in finance, too. Other than that, we could and should seek to erode the role of the economic regulators over time, normalising their markets as far as we can, as this report recommends. It is not a quick process; it will take time, but it can and should be done, outside the areas I have just described.

How are we doing? In some respects, quite well. There is something called the “Economic Regulation Policy Paper”, which I am sure everybody here has been keeping next to their bed for bedtime reading. That came out of the Department for Business, Energy and Industrial Strategy a couple of weeks ago, and is intended to address the statutory duties of the economic regulators, and increase the level of competition they are involved with. It makes all the right noises and speaks all the right warm words about doing that. I will come back to that in a minute, because one of its problems is that, in modernising the statutory duties, to enable the process I have laid out, it is going to

“launch a review of utilities regulators’ statutory duties in 2022.”

It does not say when that is going to be launched, when it will be finished or what it will do about it when it is done. Everybody here will be familiar with the term “long grass”. I hope the Minister will be able to reassure us that this is not long grass, that it will happen in a timely way, and that he is out with his lawnmower trimming the sward to ensure that it will happen, rather than get parked somewhere and gently forgotten.

There is also good news on public procurement, which has been brought into sharp focus during the pandemic. We absolutely need to have a faster, better and more transparent public procurement process. We inherited this process from the EU as the OJEU—Official Journal of the European Union—rules. They do a lot of good things, but incredibly slowly and in bureaucratic fashion. As a result, we end up with processes that are clunky. When we have a national or international emergency, such as the pandemic, they are cruelly exposed as not working well enough.

I am pleased to say that there was when I published this, and there remains, a continuing commitment to launching a new public procurement Bill. That is due, probably not in this Session, but I hope in the next. It has been heavily trailed, and I hope and expect that it will take what we have and make it much more nimble, digital and open to small firms being able to compete with long-standing large incumbents, such as Carillion. It will not only be pro-competitive but will involve a great deal of better value for money for taxpayers. It will mean that we are less likely to have, for example, a scramble for personal protective equipment, if we have another national emergency such as the pandemic in future.

Finally, on the positive side of the ledger, there has been some progress on the ideas I talked about for trying to improve competition outside the south-east, and to improve retail opportunities for people who need redress, if they have been done wrong and their consumer rights have been breached. There has been a little progress on trying to make small claims courts and ombudsmen work better, more digitally and faster, while continuing to be cheap, so that there is ready justice, if necessary, for somebody who has not got what they paid for under consumer rights. That is all good, but we have a great deal further to travel.

My contention is that in a digital world, we should be able to have the same kind of 24/7 service that we expect when logging on to do our grocery shopping at 3 am— I do not do that, but some people do. That is something that, increasingly, we expect to be able to do. If we can shop 24/7, we should be able to seek redress 24/7 when that is needed, but there is a noticeable gap there.

Although that gap is starting to close, and there have been reforms of the small claims court for example, there has been no reform in other areas that need it, such as in the creation of county competition courts. Such reform is necessary to create opportunity for small, local companies that are being ganged up on by larger local incumbents and prevented from prosecuting their competition rights, because taking someone to the Competition Appeal Tribunal in London for a breach of competition law is never going to be affordable.

Even under the current fast-track approval process, redress is still out of reach for most small regional firms. A restaurant in Bristol, an estate agent in Hull or an hotelier in Liverpool will not be able to afford to do anything if they are being ganged up on by a local competitor until we get what I am calling “county competition courts”. I am afraid that there has been little progress towards that at the moment. Nor has there been progress towards a generalised update and improvement of local trading standards teams. That is needed in many parts of the country to ensure that there are proper defenders of consumer rights.

I do not want to cavil too much, because there is a decent list of progress. It would be churlish to say that nothing has happened in the last year, because it really has. I commend the Government and my hon. Friend the Minister on that progress, but I am afraid that there is a slightly longer list—it is certainly a serious list—of things that have not yet happened on the other side of the ledger. I will run through them quickly, then leave it for others to pick up on any particular points.

First, one of the report’s central points is about speeding up how fast people can get justice through the CMA if they need it. As I mentioned at the start of my speech, we have to ensure that all but the most complicated, hideously difficult and groundbreaking cases can be decided by the CMA. Most cases ought to take weeks or months rather than years. At the moment, there is no overall core process redesign within the CMA or the Competition Appeal Tribunal, which is effectively the appeals court for lots of CMA cases. Such a redesign—if I can call it that—will be necessary to make dramatic improvements in the availability and certainty of justice.

That matters because at the moment, it is all too easy for large, well-lawyered incumbents to walk backwards, slowly, in the face of a challenge from a small, plucky entrepreneurial, insurgent firm that is trying to transform and disrupt a particular market. If they can strew legal obstacles in the challenger’s path, they can basically make it much harder for Britain’s economy to be nimble.

[Cherilyn Mackrory (Truro and Falmouth) (Con)]

I appreciate what my hon. Friend says about competition. Does that apply to local authorities, which tend just to employ one arm’s length contractor when plenty of local people could bid for jobs such as road building and maintenance, for example?

[John Penrose]

That is a particularly good example of the kind of problem that I was referring to when I mentioned public procurement reforms. I think we should be all extremely interested in what they show. When those reforms come, they should mean that local government, as well as national Government and many arm’s length bodies—from the NHS to English Heritage, and everyone else in between—should be able to make much faster decisions in a way that is more accessible to small firms that are not equipped to wade through pages and pages of tender documents, some of which require a PhD and actually have little to do with whether a product or service is better than the big incumbent’s. That will be an essential change.

Speeding up the CMA is absolutely essential. One of the most glaring and—I am afraid to say—saddest omissions from the recommendations is on better regulation. There is a difference between deregulation and better regulation. I am sure that you are thoroughly familiar with it, Mr Efford, but for the record and for everybody else, deregulation is where standards are got rid of and there is a sort of race to the bottom—that is not what I am recommending in this report at all—whereas better regulation says, “How do we deliver the same standards in environmental quality, food standards, workers’ rights and all the other things that we regard as essential in our modern society, in a way that is cheaper, quicker, simpler, or more digital or more modern? How can we do that in a way that costs the providers of those things less?” If it costs the providers less, that means they can do it at lower cost, which means that consumers can get the same product or service at a lower price in the first place. It is up to everybody and it will be for all our benefit if we can do that.

However, getting rid of red tape and regulation is one of the hardest things to achieve in Westminster and Whitehall, because everybody here knows that the culture of this place is framed in terms of making new rules. That is how civil servants or—dare I say it?—one or two MPs make their career; it is by inventing new rules and not by getting rid of old ones. That is the culture of this place.

Better regulation is an extremely easy thing to say and an extremely difficult thing to do, although there have been examples—rare ones—in the past where we have succeeded. There was a brief flowering of success between 2010 and 2015, under David Cameron when he was Prime Minister, whereby the pro-regulatory ratchet got reversed and for a couple of years we were genuinely making progress, and in fact local firms and small firms and their organisations, particularly the Federation of Small Businesses and similar bodies, noticed it and said, “This is working”.

Unfortunately, when David Cameron left office, the blob pounced; I do not know whether a blob can pounce, but perhaps it enveloped the new regime. When David Cameron left office, the blob looked at what worked—basically, it was having a gateway condition saying, “If you are the Minister for paper clips, you can’t have new rules about paper clips until you have found two old ones to get rid of”; that was the thing that had been making things work until then—and said, “That’s a terribly old-fashioned way of doing it. We’ve got a much better way of doing it. Why don’t we have a big target and we’ll hit the target and that will be good?”

However, because the blob had got rid of all the rigour and all the mechanisms for getting rid of the red tape, what happened instead was that there was a huge target, which was completely missed. In two years, we went backwards, by £8 billion-worth of extra costs, when we had expected to remove £9 billion-worth of extra costs. Instead of removing £9 billion-worth of extra costs, we added £8 billion-worth, which was a £17 billion miss in two years.

That was absolutely disastrous compared with what we had been doing for the previous five years, and the thing that worries me is that it is being recommended that we go back to something rather similar. I do not care whether it is one in, one out or one in, two out, but it is essential that we have that gateway condition, because if we do not have it we will carry on going backwards.

I am afraid, and very sorry to report, that the benefits of Brexit report—another piece of bedtime reading, Mr Efford, which I am sure you have gone through in detail—says on page 27 that we will not reintroduce the old system at all but will stick with the one that has just failed, and we will carry on repeating the same mistake that we made before. I really hope that my hon. Friend the Minister will be able to tell me that that has now changed around, but I fear that he will be unable to. If we do not change around, then we will fail again, and—let us be very clear about it—that is what we are currently heading towards.

I have final thoughts on the economic regulators, Mr Efford; I am nearly there. As I say, we have had some progress here, because, as I mentioned, the Government have said that they are consulting on trying to improve the statutory duties of economic regulators to add extra competition, which should lead to shrinking the regulators over time.

However, as I also mentioned, we do not have a date for when the report on the economic regulators is due, so we do not know if anything will ever be done about them; I hope that my hon. Friend the Minister will be able to say that the Government will do something about them. Without a date and without a firm commitment in principle that the report will genuinely try to normalise as much of the market as it can, outside the network of monopolies that I was talking about, the suspicion has to be that we are not trying to normalise these markets and that what will happen—unacknowledged, but none the less firmly—is that there will be no appetite for normalising as much of these markets as we can, and that instead the preferred destination is perpetual heavy regulation. I really hope that my hon. Friend the Minister can reassure me that that is not the de facto intention behind what we are currently doing.

My final point is about the final chapter in the report, which is on subsidy control. Subsidies are a very heady political drug, if we are not really careful. No matter the political party we belong to, it is always tempting when lobbyists come knocking. It does not matter whether a Member is in opposition or in government, nor whether it is local government or national or sub-national Government. When lobbyists come knocking, they say how terrible it is that this big, important local employer has been left behind—it did not invest in whatever it was it was doing and is now 20 years out of date, so it has been overtaken by plucky entrepreneurial upstarts from other parts of the country or, indeed, from other countries—and they say, “Isn’t it terrible that these jobs are now at risk? What we need is a just a temporary wafer-thin subsidy to tide us over for a couple of years while we fix things.” Of course, they do not fix things and then, a couple of years later, they come back and ask for more.

That is expensive for taxpayers and it reduces both the productivity of industry and the long-term security and sustainability of British jobs, which become progressively more and more vulnerable to international competition. Ultimately, it is the thing that did for us in the 1960s and 1970s, and which we had enormous pain trying to fix in the 1980s and 1990s. Subsidy control is vital. It is one of those rules that has just come back, post Brexit, from being run by Brussels. We have a Subsidy Control Bill before Parliament at the moment—it is in the Lords. It will do all sorts of really good things to speed up our subsidy control process; it is much more nimble and light-touch. If authorities are compliant with six or seven different principles—