A new “Minister for Competition” should be appointed as part of a post-Brexit overhaul of Britain’s competition laws, a think-tank says today.
New competition powers and rules will be needed to ensure British consumers get good deals in an economy increasingly dominated by global online players such as Microsoft, Amazon and Google, the Social Market Foundation said.
The SMF said that too many British consumer markets are dominated by big companies who do not have to compete hard to remain on top, meaning that prices are too high and customers get poor service. Established incumbents can also hand big profits to shareholders and executives instead of investing in new technology and innovation.
Politicians should do much more to encourage competition among companies, the SMF said, calling for a tightening of merger and acquisition rules to make it harder for companies to dominate markets by buying smaller rivals.
A wider overhaul of competition rules is needed because of Brexit and the changing nature of the global economy, the SMF said in a new report on consumer markets.
As an EU member, Britain effectively shares competition policy with the European Commission, but outside the EU, Britain will need its own more innovative and responsive approach to tackling global competition enforcement challenges, such as fast-moving digital markets and dominant online platforms.
As well as appointing a new Minister for Consumers, Competition and Markets, the SMF said that the Government should make increasing competition a central plank of economic policy, starting with new official statistics to measure competition and market power among large companies. Market regulators should report publicly to ministers on “concentration ratios” showing the dominance of big suppliers, as well as profit margins and prices, so MPs and voters could see where a lack of competition was proving bad for consumers.
The SMF also proposed a range of new measures to help consumers get more out of markets, including:
- Ownership of personal data
The SMF would like to see some of the principles applied in Open Banking extended to other markets such as energy and telecommunications.
Allowing consumers to easily obtain digital records of their energy and telecommunications usage, and associated charges, would facilitate the development of new apps and internet tools to guide, encourage and automate supplier switching. Algorithms can be developed which recommend products to individuals based on usage and charges.
Regulators would need to play a key role in ensuring data provision is standardised in a way that enables such an infrastructure of apps and algorithms to develop.
- “Click in, click out” subscription rules
Companies often make it harder to unsubscribe to a product than to subscribe, creating barriers to abandoning products that are poor value or of low quality. While it may be possible to subscribe to a broadband package or pay-TV on the internet, unsubscribing often requires an individual to make a telephone call to the company.
The SMF would like to see this asymmetry removed from consumer markets. One simple way of doing this is for the government and regulators to require companies to have a symmetric approach to subscription and unsubscription – if it is possible to sign-up online to a product, such as a pay TV or broadband service, it should be possible to unsubscribe online.
- Automatic switching away from poor deals in energy and telecoms
The SMF would like to see an automatic switching scheme introduced, whereby regulators, the State or another non-profit entity automatically switches “sticky” customers to new, cheaper challenger providers. For example, in the energy market, individuals that have been on a standard variable tariff for more than three years would be automatically switched to a cheaper provider that is not part of the “Big Six” group of large incumbent energy companies.
Such a move would improve consumer outcomes in the sector by introducing greater competitive pressures for firms to keep prices low and customer service quality high – and broaden out the energy market so it is less dominated by large incumbents. Once industry concentration has declined sufficiently, we would expect Big Six suppliers to also be able to compete in the automatic switching process.
The SMF proposes a similar scheme be adopted with respect to those that are on fixed line-only telephone contracts, with automated switching to a cheaper provider that is not British Telecom.
The default would be that individuals are opted into the schemes. They can choose to opt out in if they wish.
- A “presumption in favour of competition” at the heart of M&A policy – putting consumer interest first
At present, when considering whether to permit a merger, the Competition and Markets Authority (CMA) identifies possible “theories of harm” – ways in which the merger might lead to worse outcomes in a consumer market – such as a substantial loss of competition and higher consumer prices. If these theories of harm are considered likely to occur, and no credible remedies to these harms can be implemented, then the CMA can prevent a merger going ahead.
While the “theories of harm” approach to assessing mergers has helped prevent detrimental mergers going ahead, the SMF note some of the inherent challenges and judgment calls involved in the process. Assigning probabilities to theories of harm is often a subjective process with significant uncertainties – meaning that mergers may be permitted when the actual probabilities of harm to consumers are inherently greater. This is not a criticism of the CMA’s processes, but an inherent challenge with assigning probabilities to economic events.
Our preference is for the “theories of harm” framework to be replaced with a new “presumption in favour of competition” – under which the CMA would be expected to prevent mergers in the most concentrated consumer markets – unless it could be demonstrated that there was a strong chance of the merger leading to improved outcomes for UK consumers (for example lower prices, better service quality and higher levels of product innovation) while not undermining competition.
Under this M&A policy framework, the SMF expects the interests of UK households to be better assured than under current arrangements, with a much clearer emphasis on consumer interests.
The report was written by Scott Corfe, SMF Chief Economist. Scott Corfe said:
“After Brexit, Britain will face big decisions about an economy where big companies powered by new technology are ever more important. It’s vital for consumers that we have rules and leaders focused on ensuring companies have to compete more for our business, since that’s what delivers better deals and a fair economy.”
“If profits accumulate in the hands of a small number of big businesses, this can drive increased levels of inequality and resentment towards a market-based economy. More competitive markets would mean better deals for consumers and an economy that is more dynamic and more fair”
Notes:
1.The SMF report is the second part of our study of markets, competition and concentration. The first part was published in October 2017 and can be found here:
Concentration, not competition: the state of UK consumer markets
- The new report will be published online at https://www.smf.co.uk on the morning at 6am on Tuesday 31st July.
- For inquiries about the report, please contact Scott Corfe on scott@smf.co.uk or +44 (0)7801 961729
- The report was supported by TSB. The SMF retained full editorial independence. As a registered charity, the SMF declares all its funding sources.
- The new report’s summary of the case for a new Competition Minister and post-Brexit competition regime is here:
The Minister for Consumers, Competition and Markets would be responsible for leading the efforts of the Government in improving consumer outcomes in markets, driving increased levels of competitiveness and minimising negative outcomes associated with excessive levels of market power held by large incumbents.
The ambition of the Minister for Consumers, Competition and Markets should be for the UK to have some of the world’s most competitive consumer markets, where there is significant demand-side pressure on suppliers to reduce prices and offer high levels of customer service. The Minister would take on many of the competition and market functions held currently by the Secretary of State for Business, Energy and Industrial Strategy.
The role of a Minister for Consumers, Competition and Markets would be particularly important in the context of Brexit. The UK and EU institutions have shared responsibility for competition matters, and Brexit could have a significant impact on the UK’s domestic competition regime in the future. Government needs to be prepared for this.
While there should continue to be consistency between the UK and EU’s approach to competition matters, the UK will be free to take a more innovative and responsive approach to tackling global competition enforcement challenges, such as fast-moving digital markets and dominant online platforms. Transitional arrangements will be necessary to clarify jurisdiction in cases which are “live” at the point of Brexit, as well as future cases relating to conduct which occurred while the UK was still a member of the EU.
Furthermore, after Brexit, a UK-wide domestic State aid framework will be needed in order to meet World Trade Organisations (WTO) obligations and avoid intra-UK subsidy races among the devolved administrations. It will be essential for the Government to involve and secure the support of the devolved administrations in developing this framework.
We would expect a Minister for Consumers, Competition and Markets to play a key role in establishing and overseeing the UK’s post-Brexit competition regime.
About the SMF
The Social Market Foundation (SMF) is a non-partisan think tank. We believe that fair markets, complemented by open public services, increase prosperity and help people to live well. We conduct research and run events looking at a wide range of economic and social policy areas, focusing on economic prosperity, public services and consumer markets. The SMF is resolutely independent, and the range of backgrounds and opinions among our staff, trustees and advisory board reflects this.