Brexit Sunset Clause Risks Uncertainty for UK Competition Law

This blog post draws on the presentation given by Professor Catherine Barnard (University of Cambridge) at the ESRC ‘UK in a Changing Europe’, ‘UK Regulation after Brexit Revisited’ event held at the British Academy in London on 27^th October 2022.

(by Andreas Stephan) The UK’s new Prime Minister, Rishi Sunak, promised to put EU laws through the ‘shredder’, as part of the leadership contest campaign video he released in August when running against his predecessor, Liz Truss. The Retained EU Law (Revocation and reform) Bill (REUL) promises to impose a sunset clause on 2,400 or so pieces of retained EU law, which will cause them to cease applying in the UK unless ministers actively act to keep them. This includes all secondary law (regulations and directives) and related case law of the European Commission and Court of Justice of the European Union (CJEU), which plays an important role informing UK Competition Law (at least to the extent that it relates to EU case law delivered until 31 December 2020). This blog explains why the law could create significant uncertainty for the enforcement of UK competition law and what might be done about it.

Stephen W. Davies (28th June 1948 – 4th August 2022)

Steve Davies was one of a handful of leading IO economists in the UK whose research developed the discipline during the decades as it evolved from naïve structure-conduct-performance, through game theory and econometric identification of causation, to the ‘economic approach’ in practical competition policy and policy evaluation.  He was General Editor of the Journal of Industrial Economics (1988 to 1993), and Academic Adviser to the Competition and Markets Authority and its forerunner the Office of Fair Trading (2001 to 2015).  He was also an inspiring teacher, generous PhD adviser, central to the department’s positive social atmosphere, committed Arsenal fan, and loving family man.

Steve attended a grammar school in North London before joining only the second cohort of undergraduates at the new University of Warwick (in 1966).  After his MA, he took a research post at the NIESR, before returning to Warwick for his PhD.  Although initially planning to study macroeconomics, he came under the influence of the emerging industrial economics group.  After turning down several other jobs, he was appointed to a lectureship at Sheffield University before moving to the University of East Anglia in 1980 as senior lecturer then professor. He was one of the four founding members of the Centre for Competition Policy (originally an ESRC research centre).

Steve was an excellent statistician, as well as economist; in fact, his prized possession from his PhD years was a copy of Aitchison and Brown’s ‘The Lognormal Distribution’.  Throughout his career, he was excited to find out what patterns were revealed in the data and how these patterns should and, equally important, should not be interpreted.  He published on a wide range of topics around productivity, market structure and competition policy.  His research developed our understanding of the diffusion of new industrial processes, distribution of firm sizes, measurement of concentration and other dimensions of market structure (including diversification, multinationals and European integration), disentangling market power and efficiency effects, measuring the benefits of competition, identifying structural indicators of tacit collusion and cartels, and much more.

For the last 25 years, he was a pioneer in the evaluation of competition policy, including monopoly investigations, merger remedies and cartels, and the impact of interventions on innovation and deterrence.  His research was enormously helpful to practitioners, and he worked closely with the OFT/CMA and the European Commission as well as the OECD.  He had a particular interest in helping competition authorities in many developing economies.  He was the main architect of the methodologies used by the UK authorities in their annual policy impact evaluations.

Steve was an inspirational teacher, focusing on an engaging narrative and using humour to maintain student attention.  He committed a great deal of his time both intellectually and socially to junior colleagues and PhD students, dozens of whom became his co-authors.  With the same positive spirit, he used to run surgeries at the OFT for young economists trying to grapple with the economics behind the cases they had to deal with.  He was less tolerant of established economists or colleagues in the university hierarchy and could be curmudgeonly with those he decided were bluffers, unjustifiably arrogant or inflexible imposers of unhelpful rules. On the other hand, he was a fantastically loyal, kind and helpful friend to academics and administrators who he decided were alright!

He had a sharp mind, keenly challenging others to explain their ideas and worked right up to the end (yes, in hospital on his last day, he was telling his family about markets, vertical integration, regional variation and even the outlook for the CMA!).  He was due to start a Leverhulme Fellowship on concentration and competition in the autumn. This was intended to apply the insights of his lifetime of research to key policy concerns of concentration and competition.  Sadly, that project will not now be completed.

His family was close and central in Steve’s life.  He met his wife, Cathy, when they were both students at Warwick and they were inseparable until she died eight years ago. He remained cheerful and good company despite his own illness and maintained a philosophical but positive outlook on life.  He leaves two daughters, a son, five grandchildren, and an Arsenal season ticket.

Energy Affordability: Heading Back to the 1980s?

(By Dr David Deller) Over the past few months there has been intense discussion of a coming ‘cost of living crisis’. A key element is the expected sharp rise in energy bills in April, when Ofgem must revise the energy price cap to reflect a sharply higher gas price in wholesale markets. This blog provides a historical perspective to address the question: how serious will the expected squeeze on energy affordability be?

The CMA as protector of leaseholders of houses?

(by Tola Amodu) The Competition and Markets Authority (CMA) has recently secured formal commitments to tackle the continuing problems experienced by leaseholders of houses. This could be heralded as a turning point in the ongoing debacle regarding the rights of leaseholders – those who while owning a property acquire only a time limited (leasehold) right to it. As the Law Commission explained in its 2020 report on the issue, ‘In England and Wales, properties can either be owned as freehold or as leasehold. Leasehold is a form of ownership where a person owns a property for a set number of years (typically, 99 or 125 years) on a lease from a landlord, who owns the freehold. Flats are almost always owned on a leasehold basis, but in recent years it has also increasingly been used for newly built houses. It is estimated that there are over 4 million leasehold homes in England alone’. The central problem is that in exchange for acquiring the leasehold interest, the leaseholder typically has to pay ground rent and certain service charges to owner of the freehold. Buyers may not fully understand that ground rents and service charges can increase exponentially over time, or that this can make the subsequent sale of the property economically unviable. This blog post explores the consequences of the CMA’s intervention and asks whether the commitments do enough to address this problem.

Competing on sustainability

(by Peter Ormosi) Morrisons recently announced that all their food will be sourced from carbon neutral farms by 2030 (10 years before the 2040 net-zero commitment of the National Farmers’ Union). This has immediately triggered speculation as to whether, and how quickly, their rivals will follow suit. Although it may not be outright obvious, Morrisons’ move raises a number of interesting questions for competition policy, especially given that its announcement is not unique, and we are witnessing a growing number of markets where firms are increasingly competing not only on factors such as price, or quality, but on sustainability as well. As sustainability is gaining more central attention in competition policy, it is useful to ask how much of our conventional wisdom from competition economics we can use to understand the market incentives behind businesses’ sustainability investments. This thought experiment is useful for regulators to understand which are the industries where regulation may be necessary, and which are the ones where market forces and competition may be more effective in delivering more sustainable business behaviour.