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Wednesday, 1 March, 2000, 08:19 GMT
The UK Competition Maze
UK competiton graph
The UK has a raft of legislation concerning competition - but it is confusing for individuals and companies alike.

When the new Competition Act comes into force on 1 March 2000 it will, according to the government, transform things.

Rip off Britain
Stephen Byers, the Trade and Industry Secretary, says that the Act "introduces the toughest regime we have ever had in this country".

For the first time, companies will be subject to huge penalties if they act in an anti-competitive manner, including fines of up to 10% of their turnover.

The Competition Act introduces the toughest regime we have ever had in this country

Stephen Byers, Trade Secretary
And the Office of Fair Trading will have wide-ranging powers to investigate companies for breaches of competition law including the right to enter premises unannounced and to apply criminal penalties for non-co-operation, or for providing false and misleading information.

According to Mr Byers, this is right because "cartels and abuse of market power stifle the smaller firms which are the lifeblood of our economy".

Anti-competitive practices banned
Restrictions on prices
Restrictions on customers or markets
Exclusive supply or purchasing agreements
Non-competition covenants
The new Act also brings the UK in line with European law. Larger mergers are already subject to the approval of the EC competition directorate.

But the law is still both complicated and untested, with companies needing to take account of the EC, the Office of Fair Trading, and the Competition Commission (formerly the Monopolies and Mergers Commission).

And the former state-owed utilities, like gas, electricity, water and telecoms, have their own regulator - as does the financial services sector.

Merger policy muddle

In one area the government has backed down - the plan to take the politics out of the merger process by taking away the discretionary powers of the Secretary of State for Trade and Industry to over-rule the competition commission and the OFT and to block and approve mergers.

That leaves the UK out of step with most other industrial countries, where political involvement in the decision-making process is less explicit.

New OFT powers
Search premises without prior notice
Criminal prosecution for obstruction
Criminal prosecution for false information
This year such a power has been controversial - particularly when Stephen Byers decided to refer a proposed merger between two of Britain's largest cable companies, thus blocking its progress.

That raised concerns that the government was taking such action in order to protect the interests of Rupert Murdoch's BSkyB satellite television channels, who are the main competitors to the cable TV companies.

Earlier, Mr Byers had blocked a plan by Mr Murdoch and BSkyB to buy Manchester United Football Club for 623m.

At that time Mr Byers announced that in future, ministers would not have the discretion to overturn recommendations by the competition authorities.

But he now says there is no Parliamentary time to introduce such a change soon, and that in any case he will retain a "reserve power" to block mergers if national interest requires it.

Alienating business?

So far, business has backed the government campaign to toughen up competition law.

The CBI has called it an essential element of government policy - but it has warned that the government must be even-handed in balancing protection of the consumer and the harm to business.

There is more concrete evidence that businesses do not appreciate the rip-off Britain campaign when it begins to damage their commercial interests.

The car industry has been seriously worried since the autumn that private buyers are delaying their new car purchases on the grounds that the prices will continue to fall.

Ford even pledged to its customers it would refund the difference if prices fell after they purchased a new car.

And the supermarkets and other retailers have reacted furiously to claims that they are ripping off customers.

After a government-commissioned survey showed that prices of most supermarket goods were not higher in the UK, they called on the OFT to abandon its competition investigation.

One of the difficulties is that small companies, which have less clout with the government, are likely to be the main beneficiaries of tougher competition laws, while large established firms could suffer.

Conflict with the OFT

The drive to boost competition policy has led Mr Byers into conflict with the Office of Fair Trading.

He has now called for a shake-up of the OFT, with its recommendations to the government being made public.

There is also evidence that the director-general of the OFT was unhappy with the strident tone of the government campaign.

John Bridgeman's five-year contract was not renewed in March.

He was seen as too soft on industry, and disagreed with government attacks on petrol prices, supermarkets and soft drinks in pubs.

The last straw was reportedly when he refused to investigate the banks and mortgage lending industry, leading the Treasury to set up the separate Cruickshank inquiry.

Improving competitiveness

Mr Byers believes that the tougher competition regime will be good for British industry, making it a stronger player in the international market.

"I'm clear that the new regime can play an important part in improving the competitive position of British business," he said.

His model is the United States, where 100 years of trust-busting have contributed to a highly dynamic and competitive economy.

Competition has replaced nationalisation as the key New Labour policy for industrial revival.

But it is still highly political, as the merger decisions show.

Mr Byers will be under presssure to deliver real benefits to consumers in the run-up to the General Election - while not offending his friends in the business community.

Even as the Competition Act comes into force, it is clear that the policy is still under construction.

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See also:

09 Aug 99 | Your Money
'Rip-off' companies face huge fines
22 Sep 99 | Your Money
No evidence of consumer rip-off
25 Feb 00 | Business
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