Competition and consumer law: time for a shakeup

Last month the UK Government announced what would be the biggest shakeup of the competition and consumer protection policy landscape for the last 20 years. On 20 July 2021 the Department for Business Energy & Industrial Strategy (BEIS) published a consultation document setting out its proposals for sweeping reforms of the UK’s competition and consumer protection law regimes, and inviting responses by 1 October 2021.

BEIS views these two policy regimes as working together to deliver a whole range of economic benefits to the UK (given the focus of a competitive market is the consumer): competition policy is crucial in driving innovation, productivity, and growth, and creating the right conditions for healthy competition between traders in markets; consumer policy is vital in underpinning consumer confidence so they can engage in those markets in an assured manner, knowing that they have a strong set of legal rights that will be respected and enforced. To restore public confidence in the market system, it is important to ensure that people see that competitive markets make their lives better.

BEIS notes the increasing evidence that the UK’s competition and consumer policies are failing to keep pace with the challenges of the 21st century: increased market power  of the leading firms in some markets in recent years, reduced overall levels of competition (compounded by the economic effects of COVID-19), and markets with stubbornly high levels of consumer harm and low consumer satisfaction.

Following Brexit, the UK has full autonomy to decide how it promotes competition in its markets, and BEIS considers that the UK’s competition authorities have newfound freedom to decide what markets or conduct to investigate, and what the best outcomes are for UK markets specifically. This calls for the Competition & Markets Authority (CMA) to have the necessary resources, powers, and procedures to deal with these cases effectively and efficiently to deliver the best outcomes for the UK.

A separate consultation sets out a vision for the UK’s new pro-competition regime for digital markets, to tackle the unique challenges of fast-moving digital markets and the powers of the new Digital Markets Unit, drawing on the 2019 Furman Review and other initiatives.

Competition policy

BEIS is consulting on a five-point plan to update the UK’s competition regime.

First, there are proposals to provide a more efficient, flexible, and proportionate market inquiry process. These include a proposal to change the structure of the market inquiry process to allow the CMA to tackle harms sooner, either by:

• retaining the current division between market studies and market investigations, but enabling the CMA to impose certain remedies at the end of a market study; or
• replacing the existing market study and market investigation system with a new single stage market inquiry tool.

It is also proposed to enable the CMA to use interim measures in market investigations to prevent potential harm while its investigations continue.

Secondly, it is proposed to “rebalance” the merger control regime by:

• increasing the turnover test threshold from £70 million to £100 million and creating a new “safe harbour” for small mergers; and
• introducing a new jurisdictional threshold (where any of the merging parties has a 25% UK market share plus a turnover of £100 million), to better address emerging threats to competition such as “killer acquisitions” in fast-moving markets.

Thirdly, the CMA’s system of reporting panels will be reformed to create a smaller, more dedicated pool of panel members to help to speed up cases, with a revised role for panel members to allow the CMA greater administrative flexibility in investigations.

Fourthly, there is to be stronger enforcement against unlawful anticompetitive conduct, through:

• greater incentives for businesses and individuals to inform the CMA of unlawful anticompetitive conduct (including by giving businesses who secure immunity from fines, immunity from civil liability);
• stronger interim measures to ensure the CMA can intervene to prevent harm, where this is necessary while investigations are ongoing; and
• reviewing appeal procedures and standards of review.

Finally, BEIS proposes stronger investigative and enforcement powers across competition tools with, for instance, stronger powers to obtain information and sanction companies which refuse to cooperate or comply with the CMA’s investigations and remedies.

Consumer law enforcement

BEIS considers that the consumer law enforcement system generally works and has delivered significant benefits. However, it sees that there are remaining weaknesses which are undermining consumer confidence and exposing traders to unfair competition. 

In order to address these, BEIS proposes a number of reforms. However, by far the most eyecatching of these is the proposal to give the CMA (and possibly other regulators) power to decide for itself where consumer law has been breached (mirroring its competition law enforcement powers), and to impose fines of up to 10% of global turnover for traders that breach consumer protection law.

Consumer rights

BEIS has identified two main developments where there is an opportunity to update consumer rights:

• the rise of online shopping, accelerated by the pandemic. Websites are increasing the collection and use of consumer data, and some are using this insight unfairly to exploit consumers’ behavioural biases, forcing them into purchases they would not otherwise have made; and
• an increase in subscription contracts. Estimated consumer spending on subscriptions is between ￡28 billion and ￡34 billion a year across multiple sectors. While subscriptions can be a convenient and low-cost way to purchase goods, services, and digital content, there are issues in particular with subscriptions auto-renewing, sometimes indefinitely, for goods, services, or digital content that a consumer does not need or want.

To keep pace with these developments, it is proposed to take three key steps.

First, subscription traps will be tackled by strengthening and clarifying the law on pre-contract information so that consumers know what they are signing up for and are given a choice on auto-renewal; nudging consumers so they are aware of ongoing subscriptions; and making it easier for consumers to exit subscriptions.

Secondly, online exploitation of consumers will be prevented by strengthening the law to better prevent posting of fake reviews online, and championing “fairness by design” principles in how online transactions are presented.

Thirdly, prepayment protections for consumers will be strengthened by amending the law to mandate that consumer prepayment schemes like Christmas savings clubs have means to safeguard customers’ money, for instance through insurance or trust accounts.