15 Mar 2012

(by Bruce Lyons) The Government that the Office of Fair Trading and Competition Commission in the UK are to be merged into a single Competition and Markets Authority (CMA). This has and it has taken a year for the government to confirm its initial inclination. The claim is that the CMA will ‘simplify and strengthen the competition landscape’. Will it?

I set out some in an earlier post, and it will take some time to wade through the impact assessment to see how well the government can claim to meet these. However, a quick first reflection can be made in relation to three key issues: the CMA’s primary duty, its scope and (perhaps most crucially) how decisions are to be made.

The primary duty will be ‘to promote effective competition in markets, across the UK economy, for the benefits of consumers’. This is very positive. It clarifies the mission along the same lines as competition policy has been developing for many years in the UK and across the globe. There was a danger that a nebulous ‘public interest’ test would be introduced explicitly into the markets regime. This would have led to unpredictability and a loss of legitimacy for an agency staffed by competition experts. In special cases, the Secretary of State will, however, be able to request that public interest issues should be investigated alongside competition issues, in which case additional experts may be brought in. The motivation is to avoid the need to set up ad hoc commissions like the Independent Banking Commission (chaired by Sir John Vickers) when issues such as financial stability alongside competition are of crucial public interest. This is sensible as long as it is used as in the mergers regime and the Minister does not find it politically expedient to make unexceptional cases ‘special’.

Issues surrounding the scope of activities previously conducted by the OFT and CC have largely been avoided. Essentially, the CMA will do exactly what they each did separately before. At least this minimises potential externalities on other organisations (e.g. the CAT). The possible exception is that a decision on the hiving off of consumer protection to Trading Standards and Citizens Advice has been postponed until a separate consultation on the consumer landscape has been completed. It is to be hoped that this signals a rethink against separation.

This leaves us with how decisions will be made in the CMA. I have already written about the of simply welding together two organisations with very different cultures and decision making structures. On the face of it, this is exactly ! Phase 2 decisions on mergers and markets will continue to be made by panels of independent experts. Antitrust decisions (on agreements between firms and abuse of dominance) will be made by the CMA Board in much the same vein as the current OFT Board. The latter has not been a strength of the current system. However, there are two small but potentially very significant changes. First, the Board will have the power to delegate decision making to individuals or committees. The latter could include CMA panellists, which would be an excellent idea (#6.25, p.57). Second, a clear separation of phase 1 and phase 2 decision making will be required: “The decision-making structure will need to ensure that executives do not form any part of the decision-making body for those decisions that are to be taken by such groups. Similarly, the members of such groups may not have any say in decisions of the type currently made by the OFT in phase 1.” [#11.19, p.99] The composition of the first CMA Board will be crucial in making this effective and operational.

Where does this leave us? It seems that the worst pitfalls of creating a new institution have been avoided, but mainly by postponing or delegating the crucial decisions.

Postscript: Apart from the institutional merger, the Government response includes numerous other detailed measures, many of them improvements. We will come back to some of these over the coming weeks.