Penrose Review: UK Competition and Consumer Policy

Paul Scully Excerpts

Tuesday 8th March 2022 Westminster Hall

[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—

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

Seven.

[John Penrose]

I thank the Minister for that information. If they comply with seven different principles of good subsidy, as opposed to bad subsidy, they can just get on with it—whether that is a local council or a national Government Minister, or anybody in between.

That is fine, except that we are keeping them a secret. We are not telling anybody what the subsidies are that we are dishing out. The EU system, which is what we are trying to replace, says that it is necessary to disclose any subsidies above half a million euros, which is quite a high level, actually. It means that a lot of subsidies are never disclosed at all, particularly if they are dished out by local councils. We are saying that it is not necessary to declare any subsidies under half a million pounds. The last time I looked at the euro-pound exchange rate, that is a higher level of disclosure than the old EU system. There are some other levels that are a bit lower for other bits and pieces, about which I am sure the Minister will remind us.

However, broadly speaking, we are going to declare less in future: we will be less transparent than we were in the past. That leaves the door open to cronyism—to local authorities or national Governments dishing out money to their mates, secure in the knowledge that nobody will know because we will not be able to see. It also leaves the door open to higher levels of subsidisation, potentially of less competitive firms, and therefore to wasting taxpayers’ money in future. Given what is happening to the cost of living at the moment, none of us wants to waste a single penny of hard-won taxpayers’ money, particularly when we have to take it as taxes in the first place.

It is a curate’s egg. It is sort of two cheers, rather than three, for what has been done so far. After a year, there has been genuine progress, and I am delighted to celebrate the points on the positive side of the ledger that I started off with. However, there is quite a lot—marginally more—on the negative side of the ledger; those things have not yet happened, but they could. The advantage is that most of the reforms that I have gone through—which have not yet happened, but which could—will not cost the Treasury a bean. They will not cost the taxpayer a bean. They will mean that British jobs and companies will become more competitive, more sustainable and safer in the long term, because, ultimately, the only thing that protects us against international competition is the fact that we are better than the international firms we compete against. It is a cheap route to economic success.

I am hoping, therefore, that it is a bit of a no-brainer. It is one of those things about which we say, “Why wouldn’t you do all of this stuff? Why on earth would you not?” The only reason, I am sure, is that there are genuinely significant vested interests behind some of these things that make them difficult to shift. However, we have a doughty warrior in the shape of the Government Minister responding to this debate. I am therefore looking forward to hearing how quickly he will be able to fight and smite the various different vested interests that would otherwise slow us down.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

It is a pleasure to serve under your chairmanship, Mr Efford.

I congratulate my hon. Friend the Member for Weston-super-Mare (John Penrose) on securing the debate and on his report. Wolfie Smith will be turning in his Afghan coat when he sees that “Power to the People” has become the mantra for fixing broken markets to encourage good competition and free markets, but the report is an interesting read. That reference got tumbleweed from some of the younger Members, but I hope that my hon. Friend remembers Wolfie Smith.

My hon. Friend’s report is an important contribution to the debate on reforming the UK’s competition policy. It has had a significant role in shaping the Government’s thinking on the priorities for reform, and I reiterate my thanks to him for his work and for his continuing engagement with and advocacy for reform.

In the report, my hon. Friend argues that the UK’s competition and consumer regime should be one of the best in the world and the Government are absolutely four-square behind that objective. Now that the UK has left the EU, we must build on this country’s innovative foundations to create a robust and agile economy that works for everyone and that is fit for future generations.

Competition and consumer policy has a central role in creating a thriving free market economy that encourages innovation, enterprise, growth and productivity. Competition policy is crucial in creating the right conditions for healthy competition between traders in markets to win over consumers by offering the best deals and innovation. Consumer policy is vital in underpinning consumer confidence. It empowers consumers to engage in markets in an assured manner, knowing that they have a strong set of legal rights that will be respected and enforced.

That is why we committed in our manifesto to give the CMA enhanced powers to tackle consumer rip-offs and bad business practices. It is also why the Government committed in our plan for growth to the UK’s having a best in class competition regime that will raise innovation and investment across the economy.

An effective competition and consumer policy will help us to build back a better and fairer economy, giving businesses confidence that they are competing on fair terms and giving the public confidence that they are getting a good deal. The UK’s competition regime is already well regarded internationally, so we are starting from a strong foundation. However, we should always strive to be better and to go further.

Markets and the way that consumers and businesses engage with each other have changed dramatically since the current legislation was enacted. That change is particularly stark in the digital economy. The tech revolution has brought huge benefits. Recent research has shown that about 15% of all businesses have adopted at least one artificial intelligence technology. In recent years, we have also seen that some digital markets have certain characteristics that make them more prone to weak competition.

Despite the actions that the UK has taken to promote competition, there is evidence from the CMA that competition may have weakened over the last 20 years. In 2020, the Government commissioned the CMA to produce an expert state of competition assessment to improve our collective understanding of the level and nature of competition across the UK economy. In its first “State of UK Competition” report, the CMA found that mark-ups, the ratio of prices to costs, had increased by 7% from 2000 to 2018. It found that in 2018 the average combined market share of the 10 largest firms in an industry was 3% higher than in 1998. It is essential that the competition regime does more to encourage and maintain competitive markets.

The Government published two consultations on legislative reforms in July last year, building on the work of my hon. Friend the Member for Weston-super-Mare. The consultation, “Reforming Competition and Consumer Policy”, set out a vision for the future of our competition and consumer policy. The separate consultation, “A New Pro-Competition Regime for Digital Markets”, set out a vision for a new agile and flexible regime to promote competition in digital markets, something that my hon. Friends the Members for Weston-super-Mare and for Folkestone and Hythe (Damian Collins) highlighted that we need to improve.

The package of reforms in the Government’s two consultations shares the ambitions of the report by my hon. Friend the Member for Weston-super-Mare. Those proposals seek to enhance the powers of the CMA and consumers’ rights, and ensure that those rights are robustly enforced. They will work to protect consumers and help businesses thrive. In addition to sharing those ambitions, my hon. Friend’s detailed report has had a considerable influence on where Government see opportunities for reform.

[John Penrose]

Will the Minister clarify when the Government expect to respond to the consultations he mentions? Clearly, they will inform what might or might not be in any future competition and consumer Act.

[Paul Scully]

Indeed. My hon. Friend is right to have used the near anniversary of his report as an opportunity to discuss the issue. Unfortunately, he has slightly missed the target of the consultation response, which we hope to bring forward very shortly. To answer my hon. Friend the Member for Truro and Falmouth (Cherilyn Mackrory), the Penrose report did not need Her Majesty to give a notification that it was coming forward. Unfortunately, I cannot pre-empt what Her Majesty will say in the Queen’s Speech about future legislation.

A central recommendation of the Penrose report, which my hon. Friend the Member for Weston-super-Mare has repeated today, is that the Government should take steps to ensure that the enforcement of competition and consumer law speeds up to keep pace with the modern digitising economy. We agree and propose a range of measures to make enforcement more efficient. For instance, we propose that the CMA should have stronger powers to penalise businesses that obstruct or slow down investigation. The Government have also proposed new ways for businesses and the CMA to reach agreements on the actions needed to resolve competition issues in market-wide investigations and merger reviews. Both those changes were recommended by my hon. Friend in his report.

He also recognised the need for UK competition regulators to work in partnership with regulators overseas, to help address competition and consumer issues that span borders. We agree that effective international co-operation is an important part of the UK’s competition and consumer regime. Promoting that co-operation is a key objective in our free trade agreements, and we have successfully secured text on that in the UK’s recent agreements with Australia and New Zealand. We have consulted on legislative proposals to ensure that the CMA and consumer authorities can work as effectively as possible with their international counterparts.

My hon. Friend’s report also emphasised the role of consumer protection law in empowering consumers and driving effective competition. We agree that our already strong consumer rights framework must continue to support consumers into the future, allowing them to benefit from new technology and business models and to feel empowered to make the best decisions available to them. We have consulted on measures to tackle subscription traps, where a consumer enters into a subscription for a product or service but has difficulty leaving. We have also consulted on measures to tackle fake reviews, as mentioned by the hon. Member for Makerfield (Yvonne Fovargue), which undermine competition and give unfair advantage to traders who are willing to use them.

In taking steps to strengthen the protections for consumers, the Government are aware of the need to consider any new burdens on businesses. We want to ensure that consumers get that fair deal and that businesses are not overburdened by regulatory barriers. My hon. Friend the Member for Weston-super-Mare is absolutely right to talk about better regulation, and I will speak a little more about that, if I have time.

My hon. Friend talked about how we can have better dispute resolution, because when consumers enforce their rights, poorly performing firms face more pressure, and consumers know they can trust the system to be on their side if they need it. That is what we need.

[John Penrose]

The Minister is being very generous. I just want to press him a bit on the point about better regulation. So far, he has not said that he wants to go back to one in, one out, or to one in, two out. Could he clarify what mechanism the Government have to ensure that better regulation happens, as opposed to being wished for with a target that will not be hit?

[Paul Scully]

We consulted on reforming the better regulation framework, and the Government do not think that a one in, two out rule—or whatever number out—is consistent with delivering world-class regulation to support the economy in adapting to a new wave of the technological revolution or in achieving net zero, so we want to reduce costs to business wherever we sensibly can do so and regulate only where strictly necessary. We intend to do that by looking at the merits of each case rather than using the one in, two out system, and we plan to change the better regulation system so that it will do that. However, it is very important that we get the balance right.

The Government believe that a well-functioning alternative dispute resolution system can make markets work more effectively, increase consumer confidence in spending and generate higher trader compliance with the law. It is an important avenue to redress for consumers that more easily allows for mediated settlements and is less confrontational than a court process, which is often more costly and time intensive, so we sought views on proposals to enhance the role of ADR in resolving consumer disputes.

My hon. Friend the Member for Weston-super-Mare also recommended that the CMA’s civil consumer enforcement powers should be upgraded, which would allow it to decide cases and impose fines in the same way as it does for civil enforcement of competition law. Again, we sought views on empowering the CMA to enforce consumer law directly, and we consulted on giving the CMA new powers to decide whether consumer law has been broken. Under the proposal, the CMA could directly impose directions, remedies or monetary penalties on firms that mistreat their customers without having to go through the courts, as is currently the case. That would allow the CMA to intervene earlier and to go further.

My hon. Friend the Member for Weston-super-Mare also mentioned the CAT. I have to say that although there are plenty more things that the CAT could do, changes have been brought on by covid. I visited CAT’s virtual court the other day, when it heard the case of Newcastle United’s takeover by the Saudi buyers. It had 35,000 people tuning in, which is more than all but the top nine average gates in the premier league, so a lot of Geordies and Newcastle fans elsewhere are now experts on competition law—I am not sure whether that is a good thing or a bad thing. None the less, it really shines a light—being with the transparency tsar—on the work of the CAT and the competition regime.

Clearly, there are also challenges in some markets in the digital economy, which my hon. Friend the Member for Folkestone and Hythe talked about. That is why we looked at what we can do to have a bespoke regime in the digital consultation. Frankly, government is not particularly good at keeping up with technology—I am talking about government as an overall body, rather than any particular government—so it is right that the market looks at how we can introduce conduct requirements and how we can have pro-competitive interventions by the digital market unit to keep up with an ever-changing regime. We also consulted on a merger regime, which is exactly the point that my hon. Friend the Member for Folkestone and Hythe was talking about—the so-called killer acquisitions and other stifling of innovation. I remember the days of Netscape, Mozilla Firefox and all the other browsers that were available but have now fallen by the wayside—again, tumbleweed from my hon. Friend the Member for Bolsover (Mark Fletcher), who is far younger than me.

My hon. Friend the Member for Truro and Falmouth talked about Cornwall. She did not just talk about regulation and competition regimes and legislation to promote things such as the direct sales of fish and the secondary industries around the exciting opportunities for lithium. Actually, it is about promoting enterprise and innovation. If regulation is there, that is fantastic, but it does not always need to resort back to a constructed regime if there are businesses ready to grab opportunities. That needs to be part of a suite of measures to ensure that the UK is the best place to start, grow and scale up a business. Part of that is the strategy that BEIS is coming up with, to show that we are ready to invest in—and are investing in—and support, for the long term, those kinds of technologies, which will give businesses the confidence to invest in areas such as Truro and Falmouth in order to make the most of that.

Looking at some other areas, the hon. Member for Makerfield talked about weddings. That was an interesting point about the covid pandemic, because I think that shows the difficulty of having a consumer policy. I was the Minister charged with engaging with the wedding sector, and that was a challenge. We had brides and grooms looking forward to their special day, which costs a lot of money. The whole point about the wedding sector is that it builds up anticipation and expectation. Clearly, however, venues and organisers especially had spent a lot of money and had a lot of reservations, but they have only a single day to provide their service. When they were compelled to lock down, or when demand was stifled, if they had refunded everything in one go, they would have been out of business. The balance was hugely difficult, with a lot of arguments between them and the CMA within that. I am glad that we got through that, largely, and that we were able to navigate through it by working with the CMA and the sector to make progress.

I will conclude on the report of my hon. Friend the Member for Weston-super-Mare, because I want to give him time to respond. His report represents a significant milestone in the process of reforming competition and consumer policy. I reiterate my thanks for his work. We will continue the conversation as we bring legislation to bear, as we make the changes where primary legislation is required, despite the fact that changes are already happening. He has acknowledged the direct impact of some of his proposals, on which we have consulted, so we will bring that all together. I continue to work with stakeholders—I spoke with them only last week on this very subject—and we are carefully considering the feedback. We will come back with measures in good time.