As 2024 draws to a close, the CMA has been in a reflective mood, commenting both on the levels of competition that can be observed across the UK economy at a macro level, and the role it plays in driving innovation, productivity and ultimately, economic growth. These pronouncements come at a time when the recently elected Labour government seeks to deliver on its mandate to address the low levels of growth observed across the UK.

As noted in our previous article, following its victory in July’s General Election, Labour’s manifesto focused on tackling the UK’s lack of economic growth in recent years. Central to this promise was the introduction of a new industrial strategy. The extent to which this might impact upon the CMA’s approach to enforcement has been the subject of considerable speculation. In a speech given to global investors at a summit on 14 October 2024, Prime Minister Keir Starmer promised to “rip up the bureaucracy that blocks investment” and to “make sure that every regulator in this country, especially our economic and competition regulators, takes growth as seriously as this room does”. 

The Industrial Strategy Green Paper (Green Paper) published by the Government on the same day as the Prime Minister’s comments is more sober in its indication of where the blockers to investment (and therefore growth) might lie. Nevertheless, it provides a helpful indication of the nature of the changes to competition policy that the Industrial Strategy might precipitate.

Labour’s Industrial Strategy Green Paper

The Green Paper sets out the Government’s vision for “a credible, 10-year plan to deliver the certainty and stability businesses need to invest in the high growth sectors that will drive our growth mission”, focusing on eight high-growth sectors: advanced manufacturing; clean energy industries; creative industries; defence; financial services; life sciences; professional and business services; and digital markets.

On competition policy in particular, the Green Paper: 

• recognises that competition policy creates incentives for businesses to innovate, allowing more productive firms to increase their market shares;
• recognises that the high-growth sectors it identifies are affected by competition differently – citing in particular the dominance issues and lock-in and network effects that have prompted concerns in the digital sector; and
• commits the Government to “robust and independent enforcement of competition law”.

The Green Paper states that the Government will soon consult on a draft “Strategic Steer” (the Steer) setting out its priorities for the CMA (this is non-binding; the CMA remains independent in choosing which cases to prioritise), and replacing the Steer given by the last government in November 2023 (usually a Steer is only issued every four years).

At the same time, the Green Paper asks for views on the “most significant barriers to investment” that relate to competition, and how “competition institutions [can] best drive market dynamism to boost economic activity and growth”.

The CMA’s growth strategy

The state of competition in the UK

Shortly after the publication of the Green Paper (but as a matter of coincidence, rather than in response to it), the CMA published its third State of Competition report. This was prepared by the CMA’s Microeconomics Unit¹ (MU) and provides a high-level overview of the competitive landscape across the entire UK economy, examining three indicators and finding that, over the past 25 years:

• cost mark-ups have risen by around 10% – mostly driven by older, larger firms with the largest markups, and by increases within industries as opposed to the relative growth of more profitable ones;
• business dynamism has fallen slightly, with the rates of firm entry and exit, and of job reallocation, declining across nearly all sectors, and the largest firms increasingly maintaining their market position; and
• market concentration has remained relatively stable. 

To explain these observations, the report points principally to the upfront investments firms increasingly need to make in R&D, software, and branding to compete effectively – creating substantial barriers to entry. The CMA observed no correlation between the numbers of acquisitions and the industries experiencing the greatest increases in mark-ups, suggesting that more (and stricter) merger control enforcement may not provide the answer to declining levels of competitiveness.

Alongside the report, the CMA announced an MU “Growth Programme” examining a range of issues, including the ease with which new technology spreads across the economy, the impact of upstream market power on economic performance and supply chain resilience, and how competition impacts investment.

CMA Chief Executive, Sarah Cardell, also highlighted the critical role of enforcement in driving economic growth, stating: "the report reinforces the important role of effective competition enforcement to drive greater business dynamism and sustained innovation, productivity, and growth across the economy", connecting it to the Government’s growth mission.

Formal response to the Green Paper

The CMA added to the above with a written response to the Government’s Green Paper (the Response) on 21 November 2024, and an accompanying speech by Cardell, entitled “Driving growth: how the CMA is rising to the challenge”.

In the Response, the CMA explained that it will contribute to the growth agenda in two broad ways:

1. advising the Government on how its Industrial Strategy can harness the power of competitive rivalry; and
2. direct use of its enforcement powers to promote growth.

On the first of these, the Response notes that the MU’s Growth Programme will examine various matters of relevance to the Industrial Strategy, including the high-growth sectors. The CMA also points to the advice it provides on subsidy design, and suggests it is well placed to support public authorities in the design and implementation of their procurement processes.

On the second, the CMA will support growth through targeted action to address barriers to competition, including: in-depth market reviews; tackling unlawful anti-competitive practices; and performing the UK’s merger control function in a “highly targeted way” – looking only at the “small number of cases that pose risk for competition and growth”. The Response points here to numerous examples of recent (and some less recent) interventions as already promoting growth in key sectors, including tackling bid-rigging in the construction sector and the implementation of Open Banking following the CMA’s 2016 Retail Banking Market Investigation.

In sum, the CMA’s position appears to be that it is already doing a significant amount to support the Government’s new agenda, with Sarah Cardell noting in her speech that the CMA made “driving productive and sustainable growth” a key pillar of its strategy in 2023. This begs the question of what, if anything, can we expect to change as a result of these latest pronouncements?

Are we due an uptick in or refocusing of enforcement activity?

Notwithstanding these statements of intent, it is notable that, in terms of the number of enforcement cases successfully concluded, 2024 is on track to be a historically quiet year for the CMA. 

Over its ten-year existence, the CMA has reached infringement decisions or agreed commitments in around five Competition Act 1998 (CA98) cases a year. In the 2020-2023 period, the average was over six. So far in 2024, it has not successfully concluded any. The CMA closed three CA98 cases, all on grounds of administrative priorities, including separate Chapter II prohibition investigations into both Apple and Google. These centred on concerns that the terms and conditions for use of their respective mobile app stores require developers to use Apple/Google’s proprietary in-app payment systems. 

On the other hand, active investigations continue in a further ten publicly announced cases – including a Chapter II prohibition investigation into Google’s AdTech service, in which a Statement of Objections was issued in September 2024. And (as noted in our previous article) the CMA made a proactive start to 2024, with a flurry of new CA98 investigations and market studies/investigations, reflecting the aim in its 2024-25 Annual Plan of focusing on “areas that matter to people most”, including housing, food and healthcare.

Nevertheless, the pipeline of new CA98 cases remains relatively limited: only three cases were opened in each of 2023 and 2024 to date, compared to fourteen in 2021-22. The CMA may therefore feel under pressure to increase its output, either in terms of prioritising the opening of new cases – especially in the high-growth sectors identified in the Green Paper – or pursuing its existing caseload with more determination.

Scope for (further) changes in the CMA’s approach to merger control?

Compared to CA98 and market investigations, the CMA’s scope to determine its mergers caseload is more limited, as it is chiefly driven by the volume of M&A activity in the economy and the number of transactions notified to the CMA. Nevertheless, the CMA can seek to increase the number of transactions called in by its Mergers Intelligence Committee – as can already be observed in the form of the strategic investments/partnerships the CMA has pro-actively reviewed in the generative AI sector (on which see our recent article).

Alongside the “stick” of the potential for heightened scrutiny of transactions in strategic, high-growth sectors, the CMA appears to be offering certain “carrots” to business in pursuit of the growth agenda. In this regard the Response points to recent reforms to the Phase 2 merger review process, but more significant is the announcement of a review of the CMA’s approach to merger remedies in early 2025.

As Sarah Cardell noted in her speech, “flexibility exists in the merger regime”, and as part of its assessment the CMA can “evaluate whether the merger is likely to result in competition-enhancing efficiencies that might offset immediate concerns”. In its review the CMA will look at when behavioural remedies may be appropriate (including whether this differs in regulated sectors) and what scope there is for remedies that lock in genuine efficiencies and preserve customer benefits that offset anti-competitive effects. In this regard Cardell pointed to the CMA’s recent decision provisionally to accept behavioural remedies in Vodafone/Three (including undertakings to carry out infrastructure investments and freeze pricing plans for three years) as an example of when such remedies may be acceptable.

While any suggestion of the CMA increasing its openness to behavioural remedies is to be welcomed, it remains to be seen whether Vodafone/Three will serve as a template for future cases. In particular, it concerns a highly regulated market, and Ofcom will monitor the merged entities’ compliance with the remedies – factors which might allow the CMA to distinguish it from most other mergers.

There are, however, other signs of the CMA becoming more pragmatic in its approach to merger assessment. For example, it recently accepted the failing firm defence in two cases in short succession – including one involving a profitable target, in respect of which no firm decision to exit the market had been taken (see our previous article for details) – and the number of outright prohibitions has been trending downward over the past three years.

A more pro-business approach to merger control should not, therefore, be ruled out at this stage, even if any changes are likely only to affect marginal cases.

The central role of the CMA’s new digital markets regulatory powers

Finally, both the Green Paper and the Response emphasise the importance of the CMA’s incoming powers of regulation over digital markets – one of the high-growth sectors identified by the Government. Under the Digital Markets, Competition and Consumers Act 2024 (DMCCA), the CMA will have the power to designate firms as having Strategic Market Status (SMS) in respect of specified digital activities and impose pro-competitive conduct requirements on them (see our previous article for more details). The CMA sees this as “a unique moment to deliver a new regime that is targeted on driving benefits for the UK economy”, by creating “a level playing field for start-ups and scale-ups (many UK based) to succeed”.

By way of illustration, the CMA’s decision to close the Apple and Google app store CA98 cases was accompanied by a statement that it expects to consider the relevant concerns under the new digital markets regime. In doing so it will leverage its findings from the CA98 investigations and its Mobile Ecosystems market study. Additionally, having provisionally concluded that Apple’s policies on functioning of web browsers may be limiting innovation, the independent inquiry group in the CMA’s Mobile Browsers and Cloud Gaming market investigation recommended that the CMA prioritises investigating both Apple and Google’s activities in mobile ecosystems under its new digital markets powers to resolve those concerns.

Following the recent passing of enabling regulations, the relevant provisions of the DMCCA will enter into force on 1 January 2025, after which we can expect the initial SMS investigations to be initiated immediately.

Conclusions

Overall, it appears unlikely that we will see a dramatic shift in competition policy in response to the new government’s growth agenda. 

Whilst indications that the CMA might be willing to adopt a more pragmatic approach to agreeing remedies in certain merger cases are to be welcomed, ultimately the CMA remains constrained by the legislative tests it has to apply. There is nothing to suggest the Government has plans to revisit those tests, and there is only so far it can move the dial with a new Strategic Steer. 

Further, it is clear that the CMA considers its existing approach to enforcement to be consistent with the Government’s growth objectives. In her speech Sarah Cardell stated that it was wrong to view industrial strategy as being in tension with competition policy. Such tension was predicated on the notion that industrial strategy requires the creation of “national champions”, which the Green Paper does not advocate. Competition should instead be “at the core” of industrial strategy. 

Consequently, alongside the possibility of a slightly more flexible approach to merger remedies, and vigorous deployment of its new digital markets powers, it is safest to expect more of the same from the CMA, not the shredding of red tape promised by the Prime Minister.
 

¹ It was this unit that produced the CMA’s report on competition and market power in UK labour markets in January 2024.