This had its first reading in Parliament on 25 April 2023 and promises to shake up the UK competition law regime, making it fit for a digital, global economy and giving the CMA much stronger powers to enforce competition and consumer protection laws.
The Bill is intended to promote growth in the UK economy by ensuring free and vigorous competition between businesses. If enacted, the Bill will herald a significant expansion to the CMA’s powers to investigate and enforce breaches of the UK competition rules, including anti-competitive conduct which occurs overseas but which has an impact on UK markets, as well putting on a statutory footing the ability of the CMA to intervene in a broader range of transactions. Unlike the digital market aspects of the Bill, these aspects of the Bill are relevant to all businesses and all sectors of the UK economy and are therefore far-reaching in their nature.
This is the second briefing in our series on the Bill, in which we examine key provisions of the Bill focussing on reforms to the UK’s competition regime. The digital markets aspects of the Bill are covered here.
The Bill in more detail
Anti-competitive conduct – extended territorial reach
Currently the prohibition against anti-competitive agreements and practices in the Competition Act 1998 applies to agreements, concerted practices, or decisions 'implemented or intended to be implemented' in the United Kingdom. However, this implementation requirement has been regarded as being too restrictive in the post-Brexit environment and in a global, digital age in which agreements implemented overseas may nonetheless impact the UK economy. The Bill therefore proposes that conduct which may affect trade in the UK, or is likely to have “an immediate, substantial and foreseeable effect” on trade within the UK, is caught. This broadens the scope of the CMA’s enforcement powers and would enable the CMA to investigate international cartels which are implemented in other jurisdictions but have a detrimental effect on UK competition.
In addition, the Bill will enable the CMA to issue requests for information to entities located outside the UK when investigating alleged breaches of UK competition laws. This has been a point of contention for the CMA and would reverse a judgment of the CAT in February 2023 in which the CAT found that the CMA does not currently have these powers. The CMA stated in response to that judgment that the CAT’s decision 'substantially risks undermining our ability to investigate, enforce against and deter anti-competitive conduct that harms consumers, businesses and markets in the UK.' This change would therefore achieve a key policy objective for the CMA.
Mergers
Importantly, the Bill introduces a new threshold designed to catch so-called 'killer acquisitions' where a company acquires control of an innovative company to try to eliminate them as a source of competition. The new threshold applies where one of the parties:
- Supplies at least 33% of all goods or services of any description in the UK, or in a substantial part of the UK and has UK turnover of £350 million or more
- The other party is a UK business, carries on at least part of its activities in the UK, or supplies goods/services in the UK
These changes could have widespread consequences to expand the CMA’s jurisdiction. Previously the CMA had relied on having a wide margin of discretion when applying the 'share of supply' test, which remains unchanged, to review 'killer acquisitions.' The new threshold would, however, enable the CMA to investigate not only 'killer acquisitions', but also mergers between businesses that are not direct competitors, for example because they are in different parts of the supply chain, or are active in upstream, downstream, or related markets, or transactions which may have a limited link to the UK.
The Bill also raises the existing turnover threshold in relation to the UK turnover of the target from £70m to £100m, in line with inflation, and introduces a 'small merger safe harbour' test, whereby a transaction will be exempt from review where each party’s UK turnover is less than £10m. This will provide welcome certainty that transactions involving small companies will not be subject to CMA review.
Lastly, the Bill introduces a number of procedural changes intended to achieve efficiency and flexibility in the merger regime. Parties will be able to request a fast-track Phase 2 merger reference, and the Phase 2 timetable may also be extended with the mutual agreement of the parties. This may be helpful in the context of global transactions which are subject to parallel review by the CMA and multiple competition authorities. Parties will also be able to offer commitments to bring a Phase 2 investigation to an early conclusion, which again would inject some welcome flexibility into the merger regime.
Enhanced powers of investigation
The CMA’s investigative powers under a warrant are strengthened. The court, or CAT, will gain wider powers to grant the CMA a warrant where there are reasonable grounds to suspect there are relevant documents accessible from premises, rather than situated on premises. As such, the CMA would have the power to require the production of documents or information stored abroad but accessible from UK premises.
Investigating officers may operate any equipment on the premises to access information stored electronically and take copies, or possession of anything produced in exercising these powers. The Bill enlarges the powers of the CMA when conducting a dawn raid under warrant at domestic premises, by enabling it to use 'seize and sift' powers. This greatly enhances the CMA’s evidence gathering powers.
The Bill creates a new legal duty to preserve evidence. Any person who knows, or importantly suspects a CMA investigation is being carried out, or is likely to be carried out, must not falsify, conceal, destroy, or dispose of a document which they know, or suspect is relevant to the investigation. The requirement applies to individuals, as well as businesses, and non-compliance can lead to a financial penalty. This is a wide-reaching and onerous requirement which potentially obliges all documents which may be relevant to a CMA investigation to be preserved, even if the investigation has not yet started and its scope is not clear.
Under the Bill the CMA can require anyone, on notice, to attend an interview at a specified place and time to answer questions relating to an investigation, rather than just being able to question individuals with a connection to a business. Any individual who may have relevant information such as an ex-employee, agent, or customer can therefore be interviewed.
Tougher enforcement powers
The Bill will enable the CMA to impose potentially very significant civil penalties for failing to comply with an investigative measure in relation to the CMA’s competition, merger, and market inquiries investigations. A penalty can be imposed on any person where they have, without reasonable excuse:
- Failed to comply with a requirement to produce documents/information, or to answer questions
- Not allowed the CMA to enter business premises (with or without a warrant), or domestic premises under a warrant
- Obstructed an officer acting within their powers or under a warrant
- Provided false or misleading information to the CMA, or to another person knowing it was to be used by the CMA
The level of the penalty will be as the CMA sees fit and can be for a fixed amount, calculated by reference to a daily rate, or a combination of the two. This is subject to the following limits:
- For a person who is not an undertaking – a fixed penalty cannot exceed £30,000 and a daily rate cannot exceed £15,000
- For a business – a fixed penalty cannot exceed 1% of annual global turnover and a daily rate cannot exceed 5% of daily global turnover
More efficient market inquiries
In a move to improve the efficiency of market inquiries, the Bill enables the CMA to specify which feature of a market requires further investigation. Schedule 6 of the Bill allows businesses being reviewed to offer the CMA undertakings at any stage of the market inquiries process. Undertakings may be given to narrow the issues which require further investigation, can be offered in lieu of a reference, or in lieu of a report.
The CMA, or Secretary of State will be able to trial a remedy before settling on a final decision, so it can assess the effectiveness of the remedy before making a final order. This aims to ensure remedies are lasting and effective. Indeed, the CMA will have a duty to monitor the effectiveness of undertakings and orders imposed and will, if the Bill is passed, have the power to amend remedies which have proved ineffective. This retrospective power applies to action taken by the CMA within the preceding ten years where the CMA has concluded that the original undertaking or order was ineffective. However, this power is not available where the CMA took action within the last two years.
Enhanced CAT powers
The CAT will have the power to grant declaratory relief in individual or collective proceedings in addition to, or instead of, granting damages. It will be able to make a legally binding statement on the application of the law to the facts before it. This will have the same effect as declarations made by the High Court. For the first time the courts and CAT will be able to award exemplary damages in competition cases (although not in collective proceedings).
Overseas co-operation
As the UK can no longer rely on competition regulators in EU Member States to share information, the Bill sets out powers for the CMA to provide investigative assistance to overseas regulators. This applies where the overseas regulator requests assistance, the regulator thinks it is appropriate to give assistance, or the Secretary of State authorises such cooperation.
What is next?
The Bill will be subject to scrutiny and debate as it passes through the House of Commons and House of Lords. It may take until late 2023 / spring 2024 to complete this review. The Bill will then need Royal Assent before it becomes law.