UK government confirms appetite for major consumer and competition law reforms

8 June 2022 Reed Smith In-depth

Home Publikationen UK government confirms appetite for major consumer and competition law reforms

On 20 April 2022, the UK government published its response following the consultation on “Reforming competition and consumer policy”, which was published in July 2021. The government response sets out a summary of the views received from respondents and identifies the proposed reforms that it still intends to take forward.

Autoren: Marjorie C. Holmes Ross Mackenzie Emma Weeden Vaibhav Adlakha

On 10 May 2022, the Queen’s speech confirmed the government’s intent to bring forward “draft legislation to promote competition, strengthen consumer rights and protect households and businesses” in the draft Digital Markets, Competition and Consumer Bill.

The principal reforms will be:

A significant overhaul and strengthening of the UK’s consumer law enforcement regime, providing the Competition and Markets Authority (CMA) with new powers that broadly mirror its powers in relation to competition law enforcement, including the ability to impose significant fines.
Changes to consumer rights in a number of areas, including ‘subscription traps’, fake online reviews, prepayment protections and an update to the Package Travel and Linked Travel Arrangements Regulations.
A series of reforms to the UK’s competition enforcement regime, granting additional evidence gathering and enforcement powers.
Changes to the UK merger control regime, including raising the turnover threshold and adding a new jurisdictional test aimed at allowing the CMA to review ‘killer acquisitions’.

Consumer law enforcement

One of the key weaknesses in the current regime, identified by the former chair of the CMA Lord Tyrie when he wrote to the government in 2019, is consumer law enforcement.

In particular, whereas the CMA has powers to directly enforce competition laws and extensive powers to investigate, its consumer law investigatory powers are more limited, and it must proceed through the courts if it considers businesses have breached consumer law. This adds time and cost to the process that, the CMA considers, slows down its ability to stop any misconduct, deter non-compliant behaviour or prevent further breaches as well as obtain redress for consumers.

The government has confirmed that it intends to provide the CMA with extensive new powers to investigate, find breaches of consumer law as well as penalise companies and individual company representative in order to redress the balance.

Key proposals include:

Allowing the CMA itself to determine whether or not consumer law has been broken; and require such conduct be stopped.
Allowing the CMA to impose fines on companies, for breaches of consumer law, of up to 10 per cent of global annual turnover in the case of a business or up to £300,000 in the case of an individual company representative.
Allowing the CMA to award redress to consumers where they have suffered loss as a result of consumer law breaches.
Giving the CMA a variety of tough new powers to compel provision of information and impose financial penalties for failure to provide information in a timely or accurate manner (up to 1 per cent of annual global turnover in the case of a business or up to £30,000 in the case of an individual company representative); additional daily penalties are also possible for continued non-compliance.
Giving the CMA the power to impose financial penalties for breaching an undertaking or a direction imposed by the CMA without a reasonable excuse (up to 5 per cent of annual global turnover in the case of a business or up to £150,000 in the case of an individual company representative); additional daily penalties are also possible for continued non-compliance.

Although it is not emphasised in the government response, we assume that these powers will be accompanied by similar checks and balances (as those present in the competition law regime) to allow businesses that have been subject to sanction appropriate rights or defence and a route of appeal.

Consumer rights

The consultation response confirms the government’s intention to proceed with a number of changes to consumer rights, including particular measures related to issues identified in digital markets and online commerce.

The particular areas the government intends to focus on are:

‘Subscription traps’ – subscriptions that consumers continue to renew despite considering them to be poor value for money. Reforms here will include increasing the amount of information provided to consumers up-front as well as information around auto-renewal or roll-over, the end of any free-trial period or low-cost introductory offers along with making it easier to end subscription contracts in a straightforward and timely manner.
Fake online reviews and exploitative online practices – this would include the ability to sanction those offering, commissioning or incentivising fake reviews as well as those who host consumer reviews but do not take sufficient steps to check they are genuine.
Certain reforms to improve protections related to Christmas savings clubs and similar savings schemes as well as review of the Package Travel and Linked Travel Arrangements Regulations 2018.

Competition law reforms

Although not as radical as the proposed reforms to UK consumer law enforcement, there are a number of significant proposed changes to the UK competition regime across both merger control, market inquiries and enforcement against anti-competitive conduct.

New threshold for merger review

The most significant change to the merger regime involves the creation of a new merger jurisdiction test designed to capture transactions involving non-competitors, where there is no direct increment to market share. Although the test is principally designed to catch ‘killer acquisitions’ in the digital sector, it is not proposed that the test would be restricted, so could apply to any sector.

Jurisdiction would be established for any transaction where one of the parties has (a) a share of supply in excess of 33 per cent and (b) a minimum UK turnover of £350 million. It is noteworthy that there is no reference to the scale of the transaction or the target, so if a company meets these thresholds, every transaction they undertake will meet the jurisdictional thresholds.

The government proposes certain measures to reduce the number of mergers captured by the UK merger control regime by raising the UK turnover threshold from £70 million to £100 million, as well as introducing a ‘small merger’ safe harbour, which would exempt any transaction from merger review where each party’s UK turnover is less than £10 million. Note that the increased threshold and safe harbour exemption do not apply to public interest interventions in media mergers.

Other competition and enforcement changes

The other changes to the competition law regime are less radical, but follow the theme of providing the CMA with additional flexibility in its approach to market and investigation work, as well as strengthening its investigatory powers.

The government is proposing to extend the CMA’s ability to fine businesses that abuse their market position, even in smaller markets, by reducing the minimum turnover threshold for immunity from financial penalties from £50 million to £20 million.

One substantive change to the current law is to amend the Chapter I prohibition in the UK Competition Act 1998, which prohibits anti-competitive conduct, so that it can apply to arrangements which are implemented outside the UK, but which have effects within the UK. With the loss of the ability to rely on EU competition rules, post-Brexit, in relation to cross-border anti-competitive conduct, this change will expand the territorial scope of the UK’s competition rules.

Conclusion

These are arguably the most far-reaching changes to the UK’s competition and consumer laws since the Enterprise Act was enacted in 2002 and are set to mark a significant increase in the CMA’s powers across both consumer and competition laws.

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