Brexit: Competition and State Aid (EUC Report)May 24, 2018
My Lords, I, too, thank the noble Lord, Lord Whitty, for tabling this debate and for his very able chairmanship of the committee, and in particular for steering us through the creation of this report. I declare my interests as set out in the register.
Broadly speaking, I am relatively happy with the findings of the report and its recommendations, but with some significant caveats. It is a solid document and I pay tribute to my fellow committee members, our adviser and our officials, as well as to those who contributed evidence to our inquiry.
The topic of competition and state aid as we near Brexit is vital to the country’s economy and future as we seek to build new global trade deals and bolster existing relationships. I would argue that this area is one where we ought as a country not just to aim for continuity beyond our departure from the EU, whenever that ends up being, but to invest and be more muscular in our approach. As a country, I feel that we have not always benefited from the existing regulatory and anti-trust infrastructure through our membership of the EU, and indeed from the state aid framework of which we have been a part. While rational, I feel that it has at times been an obstacle to companies and social organisations making a difference and growing. Yes, the machinery in Brussels and elsewhere has often pursued high-profile cases against larger players from the technology and other industries. However, as we have seen in our previous report on digital platforms, often the investigations initiated occur many years after the issues under dispute, and the fines, relative to the size and turnover of the companies concerned, are not always that punitive.
As a Conservative and a believer in free markets, I feel that for capitalism to function well there needs to be rigorous enforcement of anti-trust measures, as well as the use of lighter-touch yellow card systems, and even an approach that looks at abuses in the area of supply chains. With the status quo, I fear that what may be close to being a monopoly or oligarchy in the UK, can be overlooked for many years because it has not reached the scale that would trigger appropriate measures at a European level. We also know from previous research that some larger firms deliberately buy and shut down start-up competitors at just the level below the threshold when such a deal would attract the attention of the competition authorities. So my question to the Minister is: do the Government have plans to make better use of the freedoms that being out of the EU will give them to create a more flexible and vigorous regime for competition regulation and enforcement, in the interests of consumers, and even in the interests of smaller businesses and start-ups?
Some might say that such a regime would incur greater costs, and that we have benefited from the resources and staffing capacity of the EU to pursue some of the better-resourced firms in a co-ordinated way. Indeed, it is true that, as a country, we have the ability to leverage off the machinery of the EU to pursue those firms. But, as I have highlighted, there is a cost to outsourcing our capability—one that is borne by our consumers and our industries, and perhaps even by our wider economy through reduced productivity from less competition. To enable greater innovation and lower costs for ordinary people, I would argue that the CMA and other bodies in this area ought not just to have resources to scale up to backfill the cases in future that the EU will no longer take from us, but have even greater resources to be able to pursue a vigorous approach using both formal and informal methods. That would pay dividends for the country and ultimately be recouped through growth and increased taxes, and through more new entrants local to these isles having access to markets that have been closed off to them.
As for state aid, I can understand the sentiment in the report which seeks to continue the same measures on state aid to avoid a regional race to the bottom. But, like other noble Lords in this debate, I see Brexit as a major opportunity to review the way in which we go about enforcing state aid rules. This is truly an area where we have tended to gold-plate in the past—and I declare an interest as having been involved in companies or organisations that, historically, have bid for sums from local government or bodies subject to state aid. The picture has been one of delays and paperwork, where the sums involved have been relatively low, such that I am certain that many worthy projects that would have benefited our cities, nation and planet no doubt never saw the light of day because those involved decided against applying, given the trouble involved. Surely, as our cities re-emerge and become powerhouses once again, and with the potential for government departments to procure from more innovative start-ups and social organisations, and thereby reduce costs and improve outcomes, we ought to be using Brexit to streamline state aid, increase the caps and empower procurers to tap into the entrepreneurial energy out there. What plans are there are to do this, and do the Government share my concerns that the current system is hampering progress?
I want to use my remaining time to cover one issue raised by the government response to the report in relation to the role of the CMA, indicating that state aid will fall within its remit after Brexit. Given the points I have just made, it seems to me that there ought ultimately to be a separate and independent body altogether, which we might choose to call the PMA, or Procurements and Markets Authority, to carry out state aid and other functions. It would perhaps be empowered to hold to account government and the devolved Administrations, as well as, over time, non-government organisations and businesses, on procurement decisions generally, not just in relation to state aid. It would ideally process state aid applications in a more streamlined manner, and ensure fairness in the government procurement process, opening it up so that more players can have a chance, rather than just those which make the lives of our civil servants more convenient and lower-risk.
It could also have a hand in tackling abuse of suppliers by large organisations, and even play a role in developing best practice in how to manage procurement in the relationship between government and the public with utilities and quasi-monopolies, such as water companies, trains, energy companies, retail banks, and large public sector service providers, which is currently a hot topic. Currently, when these bodies fail to deliver, this tends to lead to an argument to nationalise them, which in my view just shifts the monopoly provider role to government, and does not solve the core issue of performance, diversity, and affordability. A post-Brexit PMA could learn lessons from around the world, such as how the Canadians regulate their banks—for example, by increasing the amount of capital they need to hold if they do not adhere to high corporate governance standards—and work with regulators to apply best practice and move away from a targets-driven bureaucratic culture that creates barriers to entry and costly red tape to one that incentivises providers to be responsive and responsible suppliers of services to citizens and government alike.
Would the Government be open to looking at such solutions post Brexit? Such an approach would, in turn, free up the CMA, ideally with a very visible lead prosecutor such as you have in the United States, to go after local instances of oligarchic anti-trust behaviour, using both formal methods such as through the courts but also informal methods with consumer groups and other whistleblowing mechanisms to bring to light anti-competitive behaviour wherever it may be found. What plans do the Government have in this area, and have they given thought to being a bit more creative in the coming transition?
I believe that, with Brexit, we have a historic opportunity to truly champion a better model of growth for our citizens. It is historic because, if you go back to the era of Peel, Cobden and the abolition of the Corn Laws, we have been a nation that has sought to lower the cost of living for our citizens through lowering tariffs and increasing competition—something that we should be proud of and which formed the basis for the modern incarnation of my own party. But I fear that, in our desire to complete a smooth transition, we may be taking too tentative a path, rather than rediscovering our historic purpose to champion the rights of the needy, the small business and the self-employed, the charity, and the ordinary citizen, to have a better and sustainable life, and to have a greater choice of providers in their lives.
This report has highlighted that it is possible to recreate in some ways what already exists outside the EU, but it also rightly points to the potential to go much further, to be more ambitious, and to think more deeply about the role that we want our competition and state aid framework to play to bring about fairness and more of a level playing field for our citizens and businesses alike. This report should be seen as a great start. The question is whether this Government and future ones can build on it to make the most of the opportunities that Brexit will bring.