Out-Law News 4 min. read

Dawn raids warning over UK cost-of-living crisis

Businesses that engage in anti-competitive conduct and exacerbate the cost-of-living crisis in the UK should expect the Competition and Markets Authority (CMA) to carry out ‘dawn raids’ on their premises, a senior official at the regulator has told a Pinsent Masons event.

Speaking at Pinsent Masons’ annual competition conference on Wednesday, Dr. Michael Grenfell said addressing cost-of-living concerns is “central” to the CMA’s mission.

“Vigorous and effective competition exerts a downward pressure on price,” said Grenfell, executive director of enforcement at the CMA.

“We will tackle anti-competitive practices and transactions that unnecessarily raise prices. We will not allow cartelists to treat the current economic circumstances as an excuse for anti-competitive collusion that makes things worse for consumers,” he said.

Dr. Michael Grenfell

Executive director of enforcement at the CMA

The days of the CMA having to refrain from dawn raids are over

In his speech Grenfell reflected on the fact the CMA was forced to pause dawn raids on businesses during the Covid-19 pandemic. However, he warned businesses engaging in cartel arrangements that “the days of the CMA having to refrain from dawn raids are over”.

The CMA has carried out unannounced inspections in a number of cases already this year and Grenfell said that this should serve as a signal of the CMA’s intent to use dawn raids to uncover anti-competitive conduct in future too.

Grenfell further pledged that the CMA would “tackle unfair trading practices that make things worse”. He cited action the regulator has already taken, using its powers under consumer protection law, to address concerns about the ease with which consumers can exit from subscription contracts in relation to anti-virus software and online gaming and welcomed commitments the government made last month to pursue legislative changes in relation to so-called ‘subscription traps’.

Grenfell said there are three major challenges the CMA faces in the months and years: dealing with the digital economy; ensuring competition and consumer policy promotes rather than hampers environmental sustainability; and ensuring that the work of the CMA matters for consumers, the economy and society more generally.

On regulating fast-moving digital markets, Grenfell said the CMA faces the same challenge other competition authorities around the world are grappling with – of intervening in a way that supports rather than curbs innovation, which he said can serve to disrupt markets, improve competition, and deliver benefits to consumers.

Davis Alan July_2019

Alan Davis

Partner, Head of Competition, EU & Trade

Businesses should not underestimate the determination of the CMA to continue to intervene in business and markets to deliver benefits and value to consumers through competition

In the UK, a new regulatory regime is envisaged to underpin the work of a specialist new regulator that will sit within the CMA, the Digital Markets Unit (DMU). Grenfell said that framework would facilitate “easier, quicker and more effective” action to address anti-competitive behaviour in digital markets.

However, while the Queen’s Speech on Tuesday confirmed that the government intends to publish draft legislation “to promote competition, strengthen consumer rights and protect households and businesses will be published” and set out further measures to “create new competition rules for digital markets and the largest digital firms”, it does not intend to proceed with that legislation in the next parliamentary year.

Grenfell said the CMA would make use of existing powers – including merger control powers – to address concerns in digital markets in the meantime.

Competition law expert Alan Davis of Pinsent Masons said: “Notwithstanding the omission of the digital markets, competition and consumer reform legislation from next year’s parliamentary timetable, the CMA has clearly signalled its intent to continue to enforce competition and consumer law vigorously using its existing powers.”

“Even though the CMA will not have the benefit of the additional enforcement powers promised under that legislation for at least another year or longer, businesses should not underestimate the determination of the CMA to continue to intervene in business and markets to deliver benefits and value to consumers through competition,” he said.

On environmental sustainability, Grenfell acknowledged that enforcement of competition law is “never going to be the primary vehicle” for addressing the issues, but he said the CMA “can ensure that we don’t unnecessarily impede progress and that environmental initiatives are pursued consistently with competition and informed choice for consumers”.

Grenfell also used his speech to reflect on the impact of Brexit on the competition regime in the UK.

He reiterated that the effect of Brexit is that the CMA now has greater scope to open its own competition investigations into areas of concern impacting UK consumers and markets, with the European Commission having previously led on many such investigations pre-Brexit where the issues were considered to have an impact more broadly within the EU. However, he said UK law limits how much the CMA, UK courts and the Competition Appeal Tribunal can diverge from EU law that pre-dates Brexit when applying the prohibitions on anti-competitive agreements and abuse of a dominant market position under the Competition Act 1998.

At the point of Brexit, so-called ‘block’ exemptions to competition law that are written into EU law were carried over into separate UK legislation. Some of those block exemptions, such as one applying to vertical agreements, are nearing expiry and both EU and UK officials have been working separately on replacing them - the finalised EU vertical block exemption and accompanying guidelines were published on Tuesday. Grenfell told attendees at Pinsent Masons’ annual competition conference that businesses should expect differences between the new UK block exemptions and the block exemptions that apply in the EU.

“We need to strike a balance,” Grenfell said. “We recognise that there is benefit for business in a degree of consistency between the UK and EU regimes; too much divergence and things can get very difficult for businesses, particularly those which have (say) distribution networks covering both the UK and countries within the EU. But, on the other hand, where we think that, on a particular issue, the EU’s approach doesn’t work for UK markets, we will take a different view, and you may have seen that, for example, in the different treatment of parity clauses between the two jurisdictions.”

“The UK block exemptions will not merely be photocopies of the EU ones with a Union Jack slapped on,” he said.

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