Snap guide to this session’s Government legislation 11) Subsidy Control Bill

12 Sep

The Bills announced in each session’s Queen’s Speech are the fulcrum of the Parliamentary year.  But they are easily lost sight of, separately and wholly, as the political cycle moves – and a mass of other news and events crowd them out.

So during the coming months, ConservativeHome will run a brief guide, on most Sunday mornings, to each Bill from this year’s Speech: what it is, whether it’s new, its main strengths and weaknesses – and whether it’s expected sooner or later.

11. Subsidy Control Bill

This is the measure that sets out how subsidies will be controlled now that the UK has left the EU.  It is a wide-ranging piece of legislation that covers subsidies that have or could havw an effect on competition or investment within the UK.

The six-part Bill provides a framework for public subsidies, prohibitions on their use, and exemptions from these in specified circumstances.  It also establishes a requirement for public authorities to use the transparency database; a Subsidy Advice Unit located within the Competition and Markets Authority (CMA), and scope for judicial review and statutory guidance.

Responsible department

Business, Energy & Industrial Strategy – and so Kwasi Kwarteng is in the lead, while Paul Scully, whose duties specifically cover competition law, will presumably take the lead in committee.

However, the Bill which touch on the business of all the department’s Ministers – including Anne-Marie Trevelyan, Minister for Energy, because it has nine principles that apply to energy and environmental subsidies (in addition to seven which apply to all subsidies).  Nadhim Zahawi is responsible for security, and Amanda Solloway for industrial strategy.  The Bill will touch on both.

Carried over or a new Bill?

New.

Expected when?

Currently under consideration – it received its First Reading in June.

Arguments for

The Bill is necessary both to implement our international commitments on subsidy control, now that Brexit has happened, and to cover subsidies that have or could have an effect on competition or investment within the UK.  The UK-EU Trade and Cooperation Agreement (TCA) gave the former some freedom to design its own system though with more conditions than would apply under WTO rules.

Many of the proposed principles are similar to those of the EU state aid rules.  The CMA will have an oversight role, but its assessments won’t be binding.  It will continue to be possible for private parties to challenge subsidy decisions in court.  EU state aid rules will still apply to subsidies covered by the Northern Ireland Protocol.  There will be exemptions for natural disasters, emergencies and national security.

Arguments against

The Scottish and Welsh governments are up in arms about the Bill.  The SNP have described it as “a full-scale assault on devolution”, while Plaid Cyrmu claim that it “only reflects the narrow interests of the UK Government”.  More broadly, this is one of those measures where the devil will lie in the detail.

The Opposition, plus interested Conservative backbench parties such as members of the BEIS Select Committee, could challenge the principles; what the Government will do with the subsidy freedoms that it has; the balance of the CMA’s powers; how the new exemption provisions (“streamlined subsidy schemes”) will work, plus the scope of proposed remedies and reviews.

Politics

Although the point about the detail and devil applies, Opposition parties will want to present a broad argument.  The Labour front bench will want to avoid this morphing into a general attack on Brexit, since it has been keen to curb these elsewhere.  Instead, it will want to paint a picture of power-crazed Ministers seeking to gain more power without adequate scrutiny.

That will dovetail with the specific grievance of the Scottish and Welsh nationalists.  Elsewhere, attention is likely to focus on the balance between government and the CMA (and the scope of compulsory referrals to it, since there will be some of these), plus the scope of private parties to issue challenges, the wording of the principles, and the workings of the proposed environmental regime.

Controversy rating: 7/10

There is much for Parliament and the public to get its teeth into – even were there no hardline Remainers to summon up the ghost of the referendum decision; angry Scottish and Welsh nationalists, and concerned Unionists to pointing the difference between the arrangements that will pertain in three parts of the UK, but not the fourth.  And a philosophical question: how statist should governments be?

Rocio Concha: If the Government wants to build back better, it must put the consumer at the centre

9 Aug

Rocio Concha is Director of Policy and Advocacy at Which?

As we start to look ahead to beyond the pandemic, the Government will have to grapple with how to stimulate an economic recovery and form public policy agendas for a society that in many ways looks different compared to 18 months ago. While there will be a natural focus on investment, innovation and competition, it would be a fundamental mistake to overlook the vital role which consumers have to play.

Because it will be everyday people that drive our economic recovery. The more confident they feel, the more they are likely to spend and shop around, to stimulate competition and to support innovation by trying new products and services – all things which the UK, and businesses large and small, are relying on to bounce back.

The challenge for the government is a daunting one – and the increase in the time we now spend online is illustrative of the delicate balancing act they must achieve. The ability to work, bank and shop remotely offers huge convenience. Many of the changes people have made to their lives will be here to stay. Yet the increasing move to a digital world has presented problems and risks, such as the significant increase in online scams, that haven’t yet been adequately addressed.

Harnessing the positives and neutralising the risks that have arisen for consumers won’t be easy. Changes that may have taken years have happened almost overnight in some cases and that needs to be caught up with.

At Which?, we believe the government should empower consumers to lead our economic recovery, and there are many ways it can do this. Building on already existing legislation or consultations, there are three areas where Ministers can make markets work more fairly, and bring an end to rogue business practices that all too often see everyday people get ripped off.

First, competition and consumer policy requires reform to give such regulators as the Competition and Markets Authority (CMA) sharper teeth, with proper powers to act as deterrents for unscrupulous companies that break consumer laws. In practice, that means swift and effective redress when customers are wronged, and proper accountability for businesses using unfair practices in dealing with consumers – as some have during the pandemic.

In the digital space, a handful of dominant tech giants, including Facebook and Google, can no longer be allowed to stymie competition and reduce innovation in the sector. The newly-formed Digital Markets Unit, operating out of the CMA, is a step in the right direction – but it won’t protect consumers unless it is equipped with the necessary enforcement powers, including the ability to hand down heavy fines.

Second, if consumers are to feel more confident engaging with new technology and new markets, then they will need to feel safe being online. It is no coincidence that fraud has surged by a third compared to last year. Yet with some of the most sophisticated technology in the world, there are measures that giant online platforms – such as those named above – which so many of us use everyday, can and must do to prevent the avalanche of fake adverts that makes it far too easy for fraudsters to target victims from appearing on their sites in the first place.

Which? research earlier this year found that four in ten investment scams begin online. The government has taken positive action to tackle aspects of online safety by introducing the draft Online Safety Bill – but, as it stands, it will fall short of swiftly dealing with all online fraud. Unless it provides online platforms with the legal responsibility to prevent, identify and remove fake and fraudulent content on their sites, including paid for ads, then fraudsters will continue to exploit their systems and services to carry out a crime that can cause a devastating amount of financial and emotional harm for its victims.

Third, as numerous new tech products furnish our homes, customers must be confident that they are safe to use. Smart gadgets and devices can bring huge benefits to consumers’ lives, but these products must be properly safeguarded with strong security protections to prevent cyberattacks.

The Government’s upcoming Product Security and Telecommunications Infrastructure Bill will scrutinise this. However, if Ministers are serious about cracking down on insecure and unsafe products in our homes, online marketplaces and retailers must be given additional legal obligations in the Bill for ensuring the safety and security of the products sold on their sites – and for customers to get appropriate redress when they buy faulty products.

Taking action in these three areas means that the Government needn’t magic legislation out of thin air to begin empowering and protecting consumers. Indeed, the government pledged to give the CMA enhanced powers to tackle rip-offs in its manifesto.

Here are the foundations from which to make people feel confident that the economy is working for them. To do so would really build back better.

Philip Booth: The Government needs to get tough (with itself) on competition policy

17 Dec

Philip Booth is Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham.

There is an old joke along the lines of “why is there only one monopolies’ commission?”. It is so lame, you won’t even see it in your Christmas cracker this year. However, there is an important point to it. When it comes to competition policy, the Government marks its own homework.

The UK’s Competition and Markets Authority (CMA) has immense powers, which it threatens to use with ever more vigour against tech firms. However, the biggest monopolies are in the provision of public services such as health and education.

In addition, many of the most important impediments to competition in the private sector come from the government in the form of regulations that restrict entry or load costs onto small businesses.

John Penrose MP is currently conducting a review of competition policy. Right at the top of his list should be competition in government-provided services and the way in which government itself, especially through regulation, impedes competition.

When it comes to public services, governments have to have a monopoly of some things – defence, penal systems, some aspects of policing and, it is worth adding in current times, certain genuine public health functions. However, experience in all these areas, especially recent experience in public health, demonstrates the limitations of state monopolies. As such, both Labour and Conservative governments have promoted school choice and also, with no discernible success, tried to promote competition in the provision of healthcare.

Just as governments of the left develop institutions designed to embed their reforms and make them difficult to reverse, supporters of competition and markets should do the same. This is especially so where competition relates to what we might regard as a natural right, such as that of a parent to choose a school for their child. Such a right is so fundamental to those of us who believe in a free society, that it needs protection in the wider political and institutional landscape.

Though most readers of this blog will probably not be supporters of the European Union, its policies in the areas of state aid and competition and public services did have some merit. They provided protection from the worst excesses of monopoly in some aspects of government service provision (though its effect was limited by the various legal exceptions).

There are two actions that the government should take. Firstly, CMA should be given a specific statutory duty to investigate impediments to competition arising from government action, especially in relation to government regulation. Crucially, such investigations should not have to relate to a specific market inquiry. For example, the CMA could examine the effect of land-use planning regulations on competition across a range of markets (education, childcare, retail etc) or the impact of GDPR regulations on the relative cost structure of small and large businesses. Secondly, it should have a like duty to scrutinise state monopolies.

Governments and barriers to entry

Regulation is such an effective bar to competition that it can be deliberately captured by incumbent businesses in order to frustrate market entry. Regulation may also be captured by the regulatory body itself which may discharge its functions by trying to reduce the risk of scandals within markets by writing ever-more regulation.

An uncosted side effect of regulation may well be to raise barriers to entry. Both market incumbents and their regulators are likely to have cognitive biases that lead them to favour regulatory solutions to problems within markets whilst ignoring the effects of competition.

Two examples are worth noting. The Financial Conduct Authority (FCA) has a statutory duty to promote competition and yet its very existence impedes competition. The process of authorisation for a new financial adviser can take six months or more and the FCA regulatory handbook has around 1,000 sections. This kind of regulation creates a significant advantage to incumbents and makes innovation especially difficult.

Although the FCA has a statutory duty to promote competition, its other objectives will always take precedence and the FCA is never held properly to account for its failure to promote competition.

A second example relates to occupational licensing. Currently, occupational licensing and certification covers 40 per cent of all employees. This figure has grown dramatically in recent years and is much higher than equivalent figures in, for example, Sweden and Denmark. There is widespread international evidence that occupational licensing damages consumers, reduces competition, and undermines social mobility.

However, though the CMA may examine a problem such as this as a minor aspect of a particular inquiry in relation to a specific market, the issue as a whole and its cumulative effects are ignored. The CMA therefore needs wide-ranging powers to investigate such government-imposed impediments to competition regardless of whether the investigation is related to a specific market inquiry.

Government monopolies

In addition, the CMA should have a statutory duty to investigate markets where governments are monopoly providers.

The CMA has a statutory duty to “promote competition, both within and outside the UK, for the benefit of consumers”. Its mission is to “make markets work well in the interests of consumers, businesses and the economy”. It’s role and effectiveness in dealing with the impact of monopoly on people’s lives would be much more effective if these statutory duties were expanded to explicitly include the promotion of competition in relation to government-provided services, such as healthcare and education. Though current EU provisions in these areas will remain after Brexit, they will be toothless: the government would be marking its own homework.

Much government policy in recent years has involved the promotion of competition in education. This needs to be reinforced by providing families with the protection of competition law.

To begin with, parents or those establishing free schools in the case of education, or various interested parties in the case of healthcare, should be able to take enforceable action, backed up by competition law, where one government body or a layer of government is acting in a way which subverts the government’s own policy in relation to promoting competition in public services. For example, parents should be able to take action if local authorities obstruct the development of a free school. Such actions, if successful, could come with penalties imposed on the offending body.

There should also be a general obligation on the CMA to investigate situations where the government itself is restricting competition in the provision of services (for example by providing its own service free at the point of use).

Summary

Current government and CMA competition policy looks at the splinter in the private sector’s eye whilst ignoring the beam in the state’s eye. The Government needs to have a more robust policy and enforcement regime. This will counter-balance the tendency towards monopoly, protectionism and regulation that pervades governments and will ensure that a reforming government can embed its reforms more deeply in the institutional landscape.

It can ensure that we can benefit from competition where monopoly is most deeply embedded – in areas of the economy protected by government regulation and in the provision of government services.

Facebook, Liz Truss and future challenges with the internet giants

3 Jul

In recent weeks, Facebook has been up against huge pressure to control hate speech and groups on its site. Much of this increased after President Donald Trump posted “when the looting starts, the shooting starts”, in response to protests in Minneapolis, on both Twitter and Facebook. The aftermath exemplified, among many things, that the two dominant social media sites had taken very different strategies to tackling inflammatory content.

Twitter went for the cautious approach. It added a warning label for the post to say that it had glorified violence, and hid the content unless it was clicked on. Facebook, on the other hand, kept Trump’s post up, on the basis that it was not an incitement of violence, but an announcement of state use of force.

Facebook’s “hands-off” approach to Trump only changed when a number of powerful companies pulled out of advertising with the site, such as Coca-Cola, Verizon and Ford, in a campaign co-ordinated by Stop Hate for Profit. Some have called these organisations opportunistic – Covid-19 has eaten into advertising budgets, and surely any company will jump on the chance to look socially righteous – but it’s still an expensive wobble that Facebook no doubt wants to avoid.

As a result, the social media has said that it will add a label to tell people that content may violate its policies; it’s a watered down version of what Twitter is offering. Even so, Zuckerberg has been fairly resilient in dealing with Stop Hate for Profit, which has set out a list of content it wants gone from Facebook and other sites. Zuckerberg said that he would not change Facebook’s policies; that he thinks advertisers will be back “soon enough”, and that he remains committed to democracy and free speech.

In spite of this, one strange area Facebook has increasingly delved into is political affairs, especially in anticipation of the upcoming US election. Some of this is to right the wrongs of 2016, in which there was foreign interference, with Russia attempting to “undermine the voting power of left-leaning African-American citizens, by spreading misinformation about the electoral process”, among other activitiesFacebook has since spent “billions of dollars in technology” and hired “tens of thousands of people” to fix this. (Incidentally, the UK is still waiting for its report on the alleged Russian interference in politics to understand the extent of it here.)

But more strikingly, Facebook has ventured into interventionist territory, with the new aim to “help 4 million people register to vote”. In doing this, Zuckerberg is taking the organisation much further away from its initial design. Many users, like myself (aged 17 when it first came out), will think of it predominantly as a tool for making friends online and posting photographs; a type of social peacocking, in many ways.

Zuckerberg, however, clearly has more profound visions. He says he wants to boost “authoritative information” for voting that he expects “160 million people in the US to see”. The goal sounds altruistic on the face of it, but it also poses big questions, like, who gets to categories “authoritative”? And should social media giants be involved in democracy at all?

Increasingly there’s been accusations from conservatives that in delving into the political realm, social media sites tend to show biases in favour of liberals, most notably Trump, who said “Twitter is completely stifling FREE SPEECH” after it fact-checked one of his Tweets. 

One writer suggests that out of “22 prominent, politically active individuals who are known to have been suspended since 2005 and who expressed a preference in the 2016 U.S. presidential election, 21 supported Donald Trump”. In UnHerd, the author and commentator Douglas Murray goes further, revealing his own suspicions that Twitter is penalising right-leaning writers, such as hiding “likes” (a way of showing support for posts) from their posts.

Some say that there is no evidence of social media biases, with Kevin Roose, a tech journalist, noting yesterday that the best performing accounts on Facebook are all conservative. A tech expert tells me that the “exact opposite viewpoint (of social media bias) is shared in various countries, where the view is that the anti-capitalist left is censored by American tech giants”.

None of this has reassured Trump, however, who is proposing a bill to make social media giants take legal liability for material that their users post. But this could crush free speech, to a certain extent, making companies more likely to remove content to protect against litigation.

Even if there is not algorithmic censorship, many people were concerned last week after Google UK launched into Liz Truss, the Conservative MP, on social media. On June 18 it posted a petition trying to lobby her on the Gender Recognition Act.

This event should have rung serious alarm bells; a tech giant coming for a Conservative politician is seriously bad news, although – tellingly – there was a dearth of news stories about it. One suspects if Google UK had attacked a Remainer politician on refusing to leave the EU, it would have received the proportion response. This was, after all, perhaps the world’s biggest holder of personal information interfering in UK democracy.

One concern that has been pointed out repeatedly about Silicon Valley, and its companies, is that the demographic make-up of its tech talent could influence the ways in which content is censored. Even Zuckerberg has called it “an extremely left-leaning place”, and many will wonder how this affects their role in deciding the terms of “offence” on social media sites, and otherwise. 

In the UK, perhaps the most significant issue is that we are just so removed from these authors of our (online) reality, even if they have domestic offices. We know little about the algorithms they use – and it suits tech companies this way, limiting others’ abilities to get into the sector.

Here brings us to the biggest question: how should UK politicians deal with Facebook and other tech giants? Much of the focus on these companies has been on their involvement in elections, but they also have an impact on Joe Bloggs’ income, too, as one report by the Competition and Markets Authority (CMA) elucidates on.

It points out that Google has “more than a 90 per cent share of £7.3 billion search advertising market in UK, while Facebook has over 50% of the £5.5 billion display advertising market”. The report suggests that by dominating the market, these organisations control the default prices for advertising, which are arguably higher than they need to be – and in turn effect the consumer, as advertisers keep their product costs high.

CMA sets out numerous ways in which the Government can start to break up these giants and encourage competition. It is quite alarming in the ways in which it highlights tech giants’ control over many things – from prices, to regulation. And all of this has to change.

Ultimately, along with the current 5G issues the Government is dwelling on, they are going to increasingly need the knowledge, and foresight, to intercept some of these tech powers before they become so dominant as to make their powers irreversible.

Already the Government has found that Apple stifled the approach it wanted to take to contact tracing, and this is just a taste of what’s to come – as the tech giants, sometimes working in conjunction, block out competition. There is a mammoth amount of information to take on board, changing all the time. Along with Brexit and Coronavirus, Tories will have their work cut out.

Ryan Bourne: Why Tyrie’s attempt to make the Competition Authority more like Which? magazine was wrong

24 Jun

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

Shelves lay barren, yet the price stickers read “Buy 1 Get 1 50% Off.” Hand sanitiser was like gold dust here in Washington DC in March. Demand surged after the Covid-19 hand hygiene advice. Unsurprisingly, stores rapidly emptied of existing stock.

More surprising was the shortages’ duration. Prices usually rise with prolonged elevated demand, encouraging new supply and making consumers rethink “unnecessary” purchases or hoarding. Markets ultimately clear – providing more at higher prices.

But no adjustment came. Big chains worried about reputational risks of raising prices in a pandemic. DC’s emergency “anti-price gouging law,” meanwhile, meant small outlets opted not to bother selling at higher prices, lest they be punished for charging “more than normal.” So prices remained notionally low, but sanitiser was unavailable.

Economists oppose anti-price gouging laws for this reason. Price controls denying market realities harm economic welfare. It might seem in consumers’ interests to keep prices low by government decree to prevent “rip-offs.” But if consumers are unable to get products they’re willing to pay more for, they can be worse off collectively than with market pricing.

I remember thinking at the time that I’d never heard of such bad pricing laws in the U.K. Just two days’ later, Andrew Tyrie’s Competition and Markets Authority warned it would use existing powers to “consider any evidence that companies may have broken competition or consumer protection law, for example by charging excessive prices” during the pandemic [my emphasis].

Last week, the CMA confirmed it is investigating four pharmacies and local convenience stores for “suspected charging of excessive and unfair prices for hand sanitiser.” Under current law, the CMA must prove these retailers have abused a dominant market position.

Given none of these businesses seem likely to much affect market realities, this is really an attempt to stop price gouging by spooking retailers. The CMA wants to make an example of them to show it is “pro-consumer,” focusing on local outlets in all likelihood because consumers had fewer options to shop elsewhere, especially those without internet accdess, giving some semblance of credibility to the idea of dominance.

This absurd use of resources is befitting of Tyrie’s legacy as CMA chairman. The former Treasury Select Committee chair resigned last week, frustrated that his demand for ever-more expansive CMA powers from government went unanswered.

But, importantly, Tyrie aimed to shift the emphasis of the CMA’s role away from its bread-and-butter role of helping to regulate economic competition (such as breaking up BAA for airport competition, or blocking the merger of Asda and Sainsbury), towards beefing up its consumer protection role as well.  He synthesised by pledging that the CMA should champion the “consumer interest.”

A Social Market Foundation speech last May outlined his vision. An address on the limits of competition law quickly descended into an analysis of public perceptions about capitalism, with a sort of call to arms that the CMA should bend the knee to “what most concerns ordinary consumers,” lest it be swept away by populism.

Tyrie acknowledged he was potentially exiting his lane, but didn’t care. Competition experts – who see the most important CMA role as protecting consumer welfare through effective competition law – bemoaned his “grandstanding,” in private.

Despite his denial, Tyrie’s vision was clearly strongly influenced by a new U.S. anti-monopoly movement that says big is bad, more competitors in a market is good, and consumers face constant threats of exploitation. Economists challenge all such claims empirically. But Tyrie puts huge weight on sentiment. Consumers “feel” they are being ripped off. Even where they pay nothing, for social media, they feel terrified about data harvesting. “We are all vulnerable now,” he concluded.

Such generalisations bode ill as a guide even to the CMA’s primary role. Amazon is regarded as one of the most reputable brands in the country, as is Google. Digital advertising has lowered advertising costs for social media’s true customers, so advertising spending has plunged as a share of GDP.

Platform users meanwhile have the option of free services that economic studies find generate big benefits to them. Even on the supposed “big is bad” opposition to tech acquisitions such as Whatsapp by Facebook and YouTube by Google, opponents ignore the many more acquisitions that don’t work or consumer welfare gains from better products when they do.

But that’s the point: Tyrie wasn’t primarily animated by the idea the competitive process protected consumers’ welfare. No, what he envisaged in championing the “consumer interest” was a more populist body with huge discretionary powers marauding around stamping out practices unfavorable to some consumers, or which consumers disliked in other more subjective ways than conventional consumer welfare analysis considers.

This distinction between “consumer welfare” and “consumer interest” is crucial. Consumer welfare can be assessed and debated using facts about the structure of the market, pricing, and evidence on innovation. Consumer interests are defined by slipperier concepts of “fairness.” Someone caring about consumer welfare might consider higher prices an unfortunate reality in a pandemic market when demand rises; someone animated by the “consumer interest” might see it as unfair to some vulnerable consumers.]

A “consumer interest” champion looks at higher prices some loyal customers pay for utilities, and sees an unfair penalty. Those interested in overall consumer welfare muse that teaser rates for new customers encourage switching, pressuring companies to remain efficient to the benefit of consumer welfare. A competitive market allows companies to compete on pricing strategies too.

A consumer interest lens, then, could sometimes actually harm competition, by eliminating businesses’ opportunities to profit where reputational constraints bind on large firms or where consumer welfare-enhancing pricing strategies exist. The CMA’s ham-fisted intervention on Covid-19 prices almost certainly prolonged shortages of numerous household products, and encouraged supermarkets to remove pro-poor discount deals instead.

Now whether Tyrie is a symptom of a within-CMA attitude shift or its cause, I’m not sure. But his tenure overall accelerated a worrying push towards such discretion. On the audit market, the CMA bypassed the standard market investigations reference process designed to investigate new anti-competitive practices.

His proposals for new CMA powers, meanwhile, would have stripped protections from companies and heightened the risk of wrongful punishments. In short, he wanted the CMA to be an aggressive consumer champion and decision-maker simultaneously – “too much prosecution, judge, and jury” according to some experts.

Tyrie now promises to push his agenda strongly in the Lords. But with so much important competition activity coming the CMA’s way post-Brexit, this “consumer interest” shift couldn’t come at a worse time.

Thankfully, the Government has resisted Tyrie’s demand for power – hence his resignation. It should now select a new chair intent on returning the competition regulator to its primary role, rather than becoming the governmental arm of Which? magazine.