Fourth Report - Post-pandemic economic growth: state aid and post-Brexit competition policy

The CMA is highly regarded by many practitioners and stakeholders, including internationally. In particular, the calibre and expertise of staff has been commended throughout this inquiry. However, we recognise the concerns raised in our inquiry about the level of involvement of the CMA Board and the transparency of its decision making. We therefore call on the CMA to engage its Board more proactively in senior decision-making and to publish more detail about its priority areas of work.

In the context of the Government’s stated aim to drive higher economic growth, we believe the CMA could be doing more to help stimulate economic growth in the UK by conducting more market studies in key sectors of the economy and thinking more about the role of competition in driving productivity. We therefore encourage the CMA to consider this part of its remit in deciding on its work priorities and resource allocations going forward.

The CMA is generally well regarded domestically. However, awareness of its work appears to be low in the UK, both amongst the public and amongst businesses. We agree that awareness of the CMA’s work and the value which it adds is necessary if it is to have credibility. We encourage the CMA to be more proactive in explaining to the public how its work has delivered for consumers, both in its annual reporting and its press notices.

The increase in the CMA’s responsibilities and powers is likely to lead to a corresponding increase in its public profile, as businesses and public authorities start to engage with it, or engage more frequently. We believe that would be beneficial and should be embraced by the CMA. We will play a part in increasing accountability of the CMA through enhanced, more regular scrutiny, challenging it when we think necessary.

Whilst we support the increase in powers for the CMA, we also share the concern that there is insufficient oversight of the CMA and its performance. Additional powers must therefore come with additional accountability. This Committee will be undertaking more work on parliamentary oversight of the CMA, and other regulators, in 2023. In the interim, we require the CMA to proactively report to this Committee on an ongoing basis.

We are encouraged to learn that the CMA is satisfied that it has received adequate resources to deliver its post-Brexit responsibilities, and that it appears to have made a good start in achieving its aims. However, the incoming Chair and Chief Executive will face major challenges in managing its expansion and in the recruitment of staff in specialist fields, on which the CMA depends heavily. We look to support the CMA in its efforts to carry out its new responsibilities. (Paragraph 54) Post-pandemic economic growth: state aid and post-Brexit competition policy 49 Competition and Subsidy Control

Additional compliance costs will be incurred by businesses that trade in both the EU and the UK, assuming some degree of regulatory divergence over time. We therefore call on the CMA to conduct a short economic analysis, to be sent to this Committee no later than September 2024, assessing the cost to business of trading in both the EU and the UK and its impact on competition.

We believe that the non-binding nature of the CMA’s role when advising on subsidies which are referred to its Subsidy Advice Unit will be sufficient in the majority of cases. The Government should ensure that the CMA has the resources necessary for the Subsidy Advice Unit to advise public authorities effectively, in a timely fashion and so as to avoid any misuse of subsidy funding.

Public authorities will need to update their understanding of the rules of the new subsidy control regime when it comes into force in late 2022. This includes delivery of subsidies from the UK Shared Prosperity Fund, where public authorities will need to consider the new subsidy control regime rules.

Although the UK Government has published further guidance on the implementation of subsides, there is still a lack of detailed information in several areas of subsidy control guidance, which may cause uncertainty for public authorities who will need to seek advice on the new subsidy control regime after implementing the interim regime.

The UK Shared Prosperity Fund is designed differently to its predecessor EU schemes. How subsidies are allocated, therefore, is crucial to ensuring the most effective use of public funds.

However, public authorities are in limbo until the Government publishes final guidance on the subsidy control regime. The UK Government needs to end this uncertainty by following the Scottish Government, which published guidance in September 2022, and publishing final guidance without delay. Only then will public authorities be in a position to make awarding decisions on subsidies with confidence and to prepare bids for funding from the UK Shared Prosperity Fund.

The Government should update the Committee within one year of implementation on the performance of the new subsidy control regime. (Paragraph 106) Consumer Policy

We therefore request that the Government gives an early indication of the extent to which it expects to use its power under Clause 17 of the Retained EU Law (Revocation and Reform) Bill as introduced, and of the likely volume and rate of flow of draft legislative reform orders, so that the Committee can assess whether its working practices will need to change substantially. At the very least, the Committee would need early warning from the Government of each impending draft legislative reform order, in order to ensure effective and prompt scrutiny.

Weak competition and consumer policy will lead to detriment for consumers and worse economic outcomes, particularly for the most vulnerable in society. We 50 Post-pandemic economic growth: state aid and post-Brexit competition policy encourage Ministers to build upon existing UK consumer law and to refrain from fundamental changes to it. Whilst UK consumer law is comprehensive, consumers still have low levels of understanding of their rights and enforcement is weak. We therefore call on Ministers to give consumer enforcement agencies additional powers and resources to improve their enforcement of consumer rights, in the interests of consumers and competition in markets. We also encourage the CMA to formally collaborate with consumer and competition law agencies in regulated sectors to reduce consumer detriment.

The COVID-19 pandemic has exacerbated the negative effects of weak competition in some industries for consumers. Consumers have increasingly experienced rip- offs and asymmetry of information.

We commend the CMA for its COVID-19 Taskforce which was effective in improving consumer rights in several industries. However, we believe that this taskforce was disbanded prematurely. We ask the CMA to establish an horizon scanning unit that pro-actively engages on consumer law enforcement, as the COVID-19 Taskforce did following an assessment of the effectiveness of the COVID-19 Taskforce.

We welcome the Government’s recent proposals to increase the CMA’s ability to fine businesses that abuse their market position, by reducing the minimum turnover threshold for immunity from financial penalties from £50 million to £20 million and imposing penalties of up to 10% of global annual turnover in instances where consumer protection laws are broken.

We believe that lower thresholds and higher penalties are necessary so that bigger businesses which break the rules do not see financial penalties as a small business cost.

We are concerned that the Draft Digital Markets, Competition and Consumer Bill is yet to be published, not least because a period of pre-legislative scrutiny is envisaged, and we therefore call on Ministers to publish the draft bill as soon as possible.

We support the idea that there should be more accessible support for consumers across the UK. We encourage the development of ombudsman services, including in sectors not currently covered by an ombudsman, as an independent and trusted arbiter that consumers understand and can engage with.

Regulators and other relevant stakeholders should invest in better online arbitration systems that are quicker and cheaper, to speed up enforcement of minor consumer rights breaches. These investments should include better internal digital case management systems and other options for consumers who are unable to access online services.

We believe that UK consumers are experiencing significant consumer detriment as a result of the behaviour of a number of airlines. We agree with the Transport Committee that the CAA’s current powers are not adequate to protect consumers’ rights in the airline sector. (Paragraph 156) Post-pandemic economic growth: state aid and post-Brexit competition policy 51

We support the Transport Committee’s recommendations in its UK aviation: reform for take-off Report of the 2021–22 Session, on the need for the Civil Aviation Authority to have the power to impose financial penalties on airlines which fail to refund customers when required to do so by law. We recommend that the BEIS Department considers the enforcement powers of sectoral regulators more widely, as part of our recommendations in this report on its future work with the CMA, as the primary enforcer of consumer law in the UK. (Paragraph 157) Digital Markets

We acknowledge that the UK approach to digital markets regulation will be different to that of the EU. However, we welcome EU efforts to increase competition and ensure a level playing field for all digital companies. We support updates to EU law that include designating gatekeepers, setting rules for firms, and sanctioning those companies which abuse their dominant position.

We agree with the recommendations of the Joint Committee on the Online Safety Bill and the House of Lords Communications and Digital Committee, that the Digital Regulation Co-operation Forum (DRCF) should have a more formal status and clearer lines of accountability, given the increasingly important role it plays in decision making between regulators. However, as the DRCF does not require formal powers, and funding is allocated by the member regulators, we do not believe that a statutory underpinning is required.

However, we do believe that the Digital Regulation Co-operation Forum’s accountability arrangements need to be updated. Until such time as these arrangements are formally agreed, the DRCF should proactively report to this Committee about the delivery of its objectives and any key decisions that it takes.

There are clear examples of market dominance in digital markets globally which have been well documented. We heard from witnesses, and during our visit to the US, strong evidence of abuses of market dominance which warrant intervention. We encourage the CMA to investigate these instances closely and collaborate internationally to promote further competition between digital firms. We also call on the CMA to continue with its market studies and for the Government to continue to ensure that the CMA is funded to carry out this work.

Digital markets are global in nature. Therefore, many countries are required to work together to assess the risks and form an approach to tackle anti-competitive behaviour. We congratulate the CMA for its work on the Digital Markets Unit so far and its international leadership on this issue.

Legislation is required if the Digital Markets Unit is to have the enforcement and other powers it needs to fulfil its role. We welcome the announcement in the Queen’s Speech that a Draft Digital Markets, Competition and Consumer Bill will be introduced, which will allow opportunities for scrutiny and improvement before a full bill is introduced. However, no Draft Bill has yet been published, and the prospects of legislation reaching the statute book during this Session now look very remote. We draw the Government’s attention to the risks of delay in legislating, and we urge it to publish the Draft Bill before the end of November 2022. (Paragraph 206) 52 Post-pandemic economic growth: state aid and post-Brexit competition policy