On 16 February, John Penrose MP published his long-awaited report into the UK’s competition regime.  Penrose was tasked by the UK Government with reviewing how the UK’s competition regime can:

1. Play a central role in meeting the challenges of the post COVID-19 economy and in driving recovery.  The Government’s Policy Paper stated that “the pandemic is the biggest threat the UK has faced in decades and overcoming it will require all the dynamism and creativity that exists across all sectors and in all regions and nations of the UK“;
2. Contribute to the Government’s aim of levelling up across all nations and regions of the UK;
3. Increase consumer trust, including by meeting the Conservative Party’s 2019 Manifesto commitment to tackle bad business practices, and ensure the competition regime is strong, swift, flexible and proportionate;
4. Support UK disruptors taking risks on new ideas and challenging incumbents; and
5. Make best use of data, technology and digital skills which are vital to the modern economy.

Recommendations

The 70 page report, entitled “Power to the People”, finds that a new Competition Act is required to “update and modernise our institutions for the new digital economy”.  It makes multiple wide-ranging recommendations, from redesigning sector-specific regulatory regimes to streamlining competition appeals.

Penrose broadly supports granting increased powers to the Competition and Markets Authority (“CMA”).  He recommends widening the CMA’s ability to accept legally-binding undertakings to remedy competition concerns and empowering it to issue higher penalties  to encourage compliance during investigations.  He also echoes many of the repeated calls  of former CMA Chair Lord Andrew Tyrie to upgrade the CMA’s powers in relation to consumer law enforcement, particularly the ability to make decisions and impose fines for breach of consumer protection law.   On 24 February 2021, Lord Tyrie reaffirmed his view that the CMA should be “a more assertive, powerful and accountable regulator”, and his calls for the CMA to do more to prioritise cases with the “most visible” public benefit are particularly pronounced in light of the CMA’s proposed reforms to digital markets regulation.

Notwithstanding Penrose’s view that the UK regime needs reform to address the new digital economy, the report is less supportive of the level of regulation proposed by the CMA in relation to digital firms with Strategic Market Status (“SMS”).

In December 2020, following a number of interventions in, and reviews of, digital sectors, the CMA recommended the creation of a new ex-ante regulatory regime, governing the conduct of key aspects of firms with the SMS designation, to be administered by a Digital Markets Unit (“DMU”).  However, Penrose suggests that the firms subject to this regime should be more limited in scope than envisaged by the CMA. In particular, Penrose recommends that a “Network and Data Monopolies Unit” (“NDMU”) should design and enforce a pro-competitive code of conduct, oversee data portability schemes and allow access to key anonymised incumbent data sets.  The NDMU should only apply its powers where the CMA’s existing powers are inadequate to tackle the relevant concern and following parliamentary consent.   The CEO of the CMA, Andrea Coscelli, has indicated that the CMA intends to ramp up investigations and enforcement in the technology sector, with or without these new powers.

In addition to recommendations in relation to the regulation of digital markets, the Penrose Report’s detailed recommendations encompass the following:

1. Certain powers currently exercised by the UK’s nine specialist sector regulators (such as the Financial Conduct Authority, the Gas and Electricity Markets Authority (Ofgem), the Water Services Regulation Authority (Ofwat) and the Office of Communications (Ofcom)) should be reviewed to avoid over-regulation. Outside the regulated network monopolies, those sectors should form a “normally-competitive industry, with the same high standards, strong competition and consumer powers as other parts of our economy”. In particular, Penrose advocates the introduction of a duty on sector regulators to publish a multi-year project plan to promote a normally-competitive industry, with a view to handing over responsibility for more and more of the sector to the CMA.
2. Competition appeals processes should be streamlined to improve procedures and case management at the Competition Appeal Tribunal. Penrose also supports the creation of a lower tier of regional county competition courts to hear local and regional cases.
3. The CMA’s powers to enforce consumer protection law should be aligned with its existing competition enforcement toolkit, including the ability to issue decisions and impose fines for breach of consumer protection law, without requiring the consent of a court. Penrose also recommends that the CMA be more active in protecting consumers from harms arising from loyalty penalties, hidden contractual terms, and ‘sludge’ (actions that nudge consumers in the wrong direction, for example incentivizing consumers to sign-up to auto-renewal subscription products).
4. Penrose envisages that the CMA should be a “micro-economic sibling for the Bank of England”. The CMA should publish an annual report on the “State of Competition and Consumer Detriment” to measure progress and monitor problems across all sectors of the economy, and all parts of the country. These findings should be used to measure the success of the CMA and sector regulators including by reference to case numbers and net benefit analysis.
5. The Government should continue to pursue cooperation arrangements, such as the framework agreement with competition authorities in the USA, Australia, Canada and New Zealand. Penrose acknowledges that UK laws permitting regulators to share confidential information are better than those of many other countries, but he takes the view that cooperation agreements facilitate appropriate and safe information exchanges, so cases are decided faster and more fairly.
6. Penrose supports the removal of regulatory hurdles where possible (the so-called “Brexit Dividend”), including through the introduction of a ‘one-in-two-out’ basis at all levels of government and regulator rule-making.

Next Steps

The response to the Penrose Report has been broadly positive, although the extent to which the Government will implement Penrose’s recommendations remains unclear. Business Secretary, Kwasi Kwarteng MP, has said that the Government will consider the proposals and “respond in due course”.