Last week, on Thursday 18 July, I gave a speech at the Social Market Foundation which considered three current challenges in relation to competition. The speech is available on the Department’s website at https://www.gov.uk/government/speeches/competition-rules-must-continue-to-evolve-with-emergence-of-digital-platforms.
The three challenges are: reducing consumer harm caused by the “loyalty penalty” in sectors such as cash savings, mortgages, household insurance, mobile phone contracts and broadband; second, addressing the new competition issues that are arising in digital markets, including in relation to the market power of large platforms; third, harnessing the power of competition to raising the UK’s productivity.
In conjunction with this speech, the Government last week brought forward publications relating to the role and performance of the UK’s competition institutions. Together, these pave the way for further consideration of potential reforms to address the challenges identified.
Strategic steer to the Competition and Markets Authority
On Thursday 18 July, I published the Government’s strategic steer to the Competition and Markets Authority (CMA). For each Parliament the Government issues a non-binding strategic steer to the CMA. The intention of the steer is to support the CMA in achieving its legal duties and objectives to promote competition, both within and outside the UK, for the benefit of consumers and the UK economy. The steer provides a transparent statement of how the Government sees competition fitting with its wider objectives for the economy alongside the CMA’s accountability framework.
Review of aspects of competition law
I also laid before Parliament on 18 July the review of aspects of the law on competition as required under sections 46 and 56 of the Enterprise and Regulatory Reform Act 2013. The review considers the effectiveness of competition enforcement and changes made to the competition regime by the 2013 Act.
The review finds that the direction of travel is broadly positive. More competition cases are being opened, merger reviews and market studies are being brought to a conclusion more quickly, and stakeholder views suggest a good degree of confidence in the regime.
The review notes that we need to consider how well-equipped the UK’s competition framework is to respond to current and future competition challenges. In its upcoming Competition Green Paper, the Government will take a wide-ranging look at the institutions, powers and tools that promote and enforce competition in the UK.
Consultation on the statutory audit services market
The Government have also published a consultation in response to the statutory audit services market study by the Competition and Markets Authority (CMA).
We have a problem with audit quality, as has been recognised and analysed by Sir John Kingman’s review, the BEIS Select Committee, the CMA and, more recently, the Financial Reporting Council itself. This is why it is right that we continuously review our audit regime to maintain the UK’s world-leading position.
In October 2018,1 asked Lord Tyrie, Chair of the CMA, to consider what can be done to improve competition in the statutory audit sector. I took this action because I want the UK to continue to benefit from a high-quality, competitive and resilient audit services market. Good governance underpins our modern industrial strategy and audits are a vital contributor to the trust and confidence required in a modern economy.
The CMA’s final report concluded that the statutory audit market has fallen short of what the UK needs in a modern economy, and made a series of compelling and wide-reaching recommendations to improve quality and increase choice in the audit market. I am most grateful to Lord Tyrie and his colleagues for their detailed and comprehensive study, which captures evidence and views from a wide variety of stakeholders. I share their concerns, and I am pleased that this study complements a wider body of work being undertaken to improve audit quality. Most importantly, we have endorsed Sir John Kingman’s recommendation to replace the Financial Reporting Council with an independent statutory regulator with a new mandate and powers.
The Government are committed to creating a fit-for-purpose and proportionate regulatory regime that delivers a competitive and resilient audit market that works for shareholders, investors and the wider public. I would welcome views on the CMA’s final proposals. I would also strongly encourage proposals from the sector outlining what they believe could be done to address the CMA’s concerns on a voluntary basis ahead of regulatory intervention. The Government will then develop a full set of proposals for reform taking account of both the recommendations from the CMA and the outcome of Sir John Kingman’s Review of the Financial Reporting Council. I do not believe that the Government need wait on the outcome of Sir Donald Brydon’s review of the purpose of audit before continuing with the process of reform of the audit market.
The consultation document will be placed in the Libraries of both Houses and is available on the gov.uk website. The consultation is open for 8 weeks and I look forward to the continued contribution of interested parties.