Penrose report: What does it mean for business in a post Brexit/COVID recovery world?

Entitled ‘Power to the People’, the Penrose Report strongly promotes: reducing regulation; strengthening consumer rights; and controlling digital networks

26 February 2021

The UK government has recently published the report it commissioned from John Penrose MP on the future of UK competition policy, but what does this mean for businesses in the UK?

The Report, which is titled 'Power to the People: Stronger Consumer Choice and Competition So Markets Work for People, Not The Other Way Around' contains a significant number of recommendations for the improvement of the UK competition regime, which it recognises as having fallen behind others such as those in the US, Germany, France and Australia (in terms of league tables at least). In the context of post-Brexit and post-COVID recovery, the report identifies effective competition (which is aligned with stronger consumer protection) in all parts of the UK economy as a key to success and prosperity, and the recommendations it contains as key to ensuring this effective competition and consumer protection. The aim of this article is not to summarise the full Report (the Report does that perfectly well itself), but to highlight some key issues which give a flavour of the direction of travel and our immediate impressions and thoughts.

Decision making in competition cases

The Report laments the ponderous speed with which regulatory decisions are made, the amounts of documentation and evidence required and companies’ need for 'an expensive priesthood of experts to advise them' through the complex processes, pointing out that not only is this bad in itself, it also puts smaller firms at a disadvantage as they are perceived as having fewer resources to manage such processes. The solution, according to the report, is for the government to establish a taskforce to complete an end-to-end review and redesign of procedures and case management in the Competition and Markets Authority ('CMA') and Competition Appeal Tribunal ('CAT'), with additional work (particularly regulatory appeals) being transferred to the CAT. The reformed processes must:

  • resolve most cases within weeks or months rather than years
  • be predictable
  • fulfil the ‘fair trial’ requirements of Article 6 of the European Convention on Human Rights

While these are ambitious and laudable goals, they have been around for some time and no solution has yet been found. The increasing data volumes and sophistication of analysis applied by both regulators and companies under investigation inevitably increases the volume of work involved in each matter and the risks to regulators of challenges to their decisions. Without regulators taking a more robust approach to risk this issue will not go away. In this respect the Report doesn’t take matters much further than re-highlighting well known issues, and recommending that work is done (and continues to be done going forwards) to address the issue.

Reducing the roles of economic regulators and other red tape

The Report recommends that sector regulators with concurrent competition powers make additional efforts to reduce the scope of their regulation and pass over areas of current competence to the CMA on a permanent basis. The effect of this would be that regulators’ competence and regulation would only extend to the core Regulated Asset Bases ('RAB' or RCV in the water sector) of the network monopolies they regulate.

This too is not new. The Enterprise and Regulatory Reform Act 2013 changed regulators duties so that, broadly, they had to consider using Competition Act powers in preference to regulatory powers where there was a choice and had to report on their use of competition powers under threat of losing them. The Report takes this a little further in recommending that regulators publish their plans for increasing competition and reducing the scope of regulation. Whether or not this brings about the desired changes remains to be seen.

There are radical proposals as regards government red tape. There should be a target of ‘one-in-two-out’ for all forms of government and regulator rule making with no exception, going back to the approach of the coalition government between 2010 and 2015. However, the Report recognises that since then government ambition (and results) have slipped. This recommendation will certainly be welcomed by businesses.

Improving Consumer Protection to ‘level up’ the UK’s regions

The Report acknowledges the economic differences between different parts of the UK, particularly between the South East and the rest of the country. It sees stronger consumer rights of redress in the form of Small Claims Courts, ADR services, County Competition Courts and increasing the powers of Local Authority Trading Standards teams as being key elements in addressing this situation.

In addition, the report criticises practises such as loyalty penalties and price discrimination, rip-offs in small print and ‘nudges’ (or ‘sludge’). These are all difficult issues to address as they all play on consumer’s ‘weaknesses’, so their analysis falls into the difficult realm of behavioural economics. The Report puts each of these in the hands of the CMA going forwards, which the CMA is likely to find challenging.

Digital and network industries

The Report backs the recommendations of the Furman report and builds on this by recommending that the CMA’s new ‘Digital Markets Unit’ should be called the ‘Network & Data Monopolies Unit’ to seek to ensure that it focusses on what the Report sees as the key issues of the use of customer data, the facilitation of disruptive competition and generally taking action to make markets more competitive rather than regulated on an ongoing basis.

This is perhaps the area of the Report that is most developed and has the potential to have the greatest effect on business practices as it is the area where ex ante market intervention is particularly recommended.

Government involvement in markets

The Report recommends that government should focus on pro-competitive relationships with markets over any political objectives. In particular, the government should implement the broad changes outlined in its public procurement Green Paper, should generally avoid any state subsidies and should protect UK new entrants from being poached offshore for non-commercial reasons.

Conclusion

While many of the issues raised in the Report are not new, it seeks and potentially marks a reinvigoration of the UK’s competition law regime with the aim of supporting the post-COVID recovery and generally increasing UK prosperity. We await the government’s response to the Report to see what impact it will have.

If you would like to discuss any of the issues raised in the Report please do get in touch with Noel Beale or your usual Burges Salmon LLP contact.

Key contact

Noel Beale

Noel Beale Director, Competition – Regulation

  • Competition
  • Transport
  • Water

Subscribe to news and insight

Burges Salmon careers

We work hard to make sure Burges Salmon is a great place to work.
Find out more