By Suzannah.Brecknell

12 Feb 2014

The new Competition & Markets Authority will referee our markets, boosting competition to support both economic growth and government outsourcing projects. Chief executive Alex Chisholm talks to Suzannah Brecknell

It all began with beer. Fresh out of university, working for a public affairs firm, Alex Chisholm was reading a Monopolies and Mergers Commission report on the supply of beer. It may have been the potential impact on the cost of a pint which grabbed the attention of the young graduate, but Chisholm recalls thinking: “This is very interesting, this competition stuff”. The next year, he joined the Office of Fair Trading as a fast streamer. Nowadays Chisholm, who describes himself as “a real competition head”, is leading the largest organisational change in the UK’s consumer and market regulation sphere in 40 years.

From April, most of the OFT’s responsibilities and staff will join those of the Competition Commission – the successor to the Monopolies and Mergers Commission – in the newly-created Competition and Markets Authority (CMA), of which Chisholm is chief executive. He has held the post since March last year, when the CMA was created in shadow form. Between his days as a fast streamer in the OFT and his new role as the leader of its replacement, Chisholm has worked in other government departments and regulatory bodies, as well as spending several years in the private sector. Most of those posts have revolved around competition policy in some way, but Chisholm says he’s not an uncritical advocate of market competition: he pursues it, of course, but not for its own sake. Competition “is there to achieve an end, and that end really is consumer welfare”, he says, acknowledging that in some cases consumer – or public – welfare is not best served by market measures alone.

New frontiers

Nonetheless, in a recently-published draft annual plan, the CMA describes “extending competition’s frontiers” as one of five key goals. This task will include working with sectoral regulators to bring greater competition to fields such as telecoms and energy. The CMA’s chairman David Currie, the former head of Ofcom, suggested in a speech last year that sectoral regulators often use their regulatory powers to achieve policy goals, rather than working to boost competition. The use of powers can provide a more predictable and straightforward way to get an outcome in the short term, he said, but really it’s only a way of “holding the fort until competition comes”.

Currie added that the OFT was reluctant to get involved in boosting competition in regulated markets, in part because its resources were much smaller than those of the sectoral regulators. With a budget of £52m, the CMA will still find itself stretched – but it now leads the newly-established UK Competition Network, which brings together the regulators with the aim of promoting competition and making these markets as “consumer-minded as possible,” says Chisholm.

The CMA will also keep a watching brief on new markets and business models to ensure they are furthering competition. One area Chisholm flags here is the potential for digital technologies to transform markets, as we’ve seen in the music and book markets. From the consumer’s perspective, he says, these changes are broadly positive: “It gives a lot more choice, typically a lot more pricing competition, and that’s to be welcomed.” At the same time, though, “we need to be alive to potentially new forms of anti-competitive structures or behaviour that could develop, [and] recognise that [consumers] are not always so familiar with the online environment so they sometimes need protection in terms of the information they’re being given at different parts of the purchasing process.”

Another set of markets where the CMA will be exploring the frontiers of competition lie within those reformed public services where, “reflecting overall government policy, [internal] markets are being introduced where there weren’t really markets before,” he says. The example he gives – higher education – is already a relatively well-developed one, following the coalition’s dramatic hikes in tuition fees. “On the supply side there is rivalry between some of the providers of higher education,” Chisholm says, while on the demand side “you can see students acting much more like consumers” in researching their choices and the cost of a degree – “which, of course, varies now between institutions in a way that it used not to.”

Chisholm’s interest extends to other public service areas, such as healthcare: there are now, he suggests, “quite a number of areas of the economy” which reflect this marketisation of public services, and where “there is potential to bring [more] competition and improved consumer information and choices.” He is, however, pragmatic about the role which competition will play in some emerging markets. In something as “complex and sophisticated” as the healthcare system, for example, “it would be wrong to try and give too much weight to competition” in an analysis of the market’s success at delivering public goals.

Persistent advocate

In most parts of government, officials will come across the CMA as it fulfils an advocacy role set out in a “strategic steer” published by the business department last year. The document says that government “recognises that it affects markets through regulation, procurement and other activities, and sees the CMA playing a key role in challenging government where government is creating barriers to competition.”

Fellow civil servants will be pleased to hear that Chisholm does not plan to start “chasing headlines or bashing people over the head” in order to fulfil this advocacy role. To be influential, he says, his team must “get in there early when ideas are still in the development phase,” advising on options which will achieve policy goals without diminishing competition.

He advises patience, partnerships, and persuasive analysis: “It pays to be persistent and to build up a very strong evidence base and a strong track record for analysis.” As an example of successful advocacy for greater competition, he points to a recent set of reforms in the workplace pensions market, which were “set in motion largely through the very compelling market study done by the OFT”, and “achieved by good research, good analysis and good persuasion.”

He also acknowledges that staff will need to take care not to present competition as the only factor shaping decisions. “You need to understand the wider frame of reference for public policy,” he says, “and also you need, frankly, to show some self-discipline about what is an area that can be resolved by competition” and those which must remain “a matter for public policy choices, led by politicians.”

Balancing needs

When the tools designed to achieve a public policy goal might have a detrimental effect on competition, Chisholm’s staff will need to help policymakers achieve the maximum public good with minimum detriment to functioning markets. To illustrate this he points to the banking regulations brought in after the 2008 financial crash. “It’s a perfect illustration of how something which is in the public interest itself – the increased capital requirements, higher standards of financial conduct – has the effect of something which is not necessarily in the public interest: a more concentrated market, [with] higher entry barriers,” he says.

There is usually a way to mitigate the impact on competition, he believes. In the banking sector, for example, the Prudential Regulation Authority has “adapted some of their requirements for so-called challenger banks to enable them to get up to a certain size and momentum before they have to deal with the full implications of [regulation].” Similar adaptations might be made when departments put in place regulations or systems to protect public welfare in other markets, but policymakers must keep asking themselves: “What is the consequence of specifying [policy] in that way? What effect is that going to have on the market?” He adds that this is “true of procurement as well: if you specify something to the umpteenth degree, you’ll find that actually a very small number of players can deal with it.”

Supply and demand

So we come to the other main market-related challenge facing civil servants: fostering strong competition between firms seeking government contracts. “There’s lots of areas in public procurement that could be done better,” says Chisholm: though “we don’t set ourselves up as the experts”, he hopes his team can advise on “the supplier side, the structure of the market, the behaviour of the firms” to help government work more effectively with its suppliers, while offering at least some demand-side advice “from a competition perspective, on what good [procurement] practice looks like.”

One market already under scrutiny from the OFT is the public sector IT market. An initial investigation by the OFT raised concerns that some businesses have the lion’s share of contracts; that there are high barriers for new entrants; and that it’s expensive for public sector organisations to switch suppliers. The final report is due to be published in March, but what are Chisholm’s own impressions of competition in this market? “It’s a market that’s quite tightly characterised by the public procurement rules,” he says, “which can mean that there’s a process-led approach to it.” This might stifle new entrants and innovation, he says. Meanwhile, “very often you have these very big and very complex projects and there’s a risk there that only very big and complex organisations can compete for those – and therefore the number of realistic bidders can be quite small.”

Another market which has come under scrutiny recently is that of frontline service outsourcing. Last November, the National Audit Office published a memorandum on the role of major contractors in delivering government services, noting concerns over the level of competition in this market, where a few large firms dominate. Asked about service outsourcing, Chisholm refers back to the OFT’s investigation – but this covered IT provision, rather than the service-delivery contracts which the NAO was discussing. When approached after the interview for a further comment, the CMA proves recalcitrant: a growing focus on “market mechanisms in public service delivery” mean that effective competition and choice will be needed to drive productivity and service improvement, it says – but the organisation, like its chief executive, seems reluctant to give opinions on how public services markets are working.

Effective enforcement

If the CMA does decide to act to boost competition in these markets, it will be able to deploy a range of tools. The authority’s powers range from forced divestments and halting mergers, to finding ways to better inform consumers – by supporting price comparison sites, for example. “It’s incredibly important that an agency such as ours is effective in the enforcement game,” says Chisholm. “If you’re able to bring cases which establish very clearly what the law is and the consequence of breaking the law, that’s the way to achieve what we want – which is a culture of compliance, where companies understand the rules of the game and are able to adhere to those.” If enforcement isn’t effective and consistent, “you create a lot of distortions where, rather than there being a level playing field, people feel that some companies are playing by different rules.”

Building strong relationships with businesses will be another aim for the new organisation, and the CMA hopes to foster this relationship by being as open as possible about the way it will prioritise and manage cases; improving the speed with which it makes decisions on matters such as proposed mergers; and building an organisation which is relatively top-heavy, with more senior than junior staff. This is important, says Chisholm, in order to be able to “conduct an effective dialogue” with businesses for whom, in many cases, the stakes will be high. Whether the cases involve deciding the fate of a multi-million pound takeover or include the potential for large fines or criminal sentences, he says: “It’s very important for the outside world to see that the people who are working on their cases, the people whom they can have some dialogue with, are people who they would recognise as being suitably skilled and experienced to be able to handle this great responsibility.”

The CMA used open competitions to fill its 30 most senior posts, bringing in six people from the private or wider public sectors. The remainder are a mix of staff from the OFT and Competition Commission, and Chisholm says he’s pleased with the skills mix they’ve created. However, asked if pay restraints have had an impact on their recruitment, he says: “In a word, yes.” The CMA offers salaries below not just those of the private sector, but also lower than the sectoral regulators such as Ofcom – and though people are attracted to working for a central agency with wide reach, he says, “there is still undoubtedly a challenge at the moment for us about the disparities of pay – and that’s something we would like to be able to address over time”. In the meantime, one way the CMA may be able to attract and retain staff is through the professional development it offers.

Strengthening opportunities for professional development has been important in keeping staff engaged during the transition to the CMA, says Chisholm, and he will soon launch a CMA Academy. This will provide training for staff to develop existing skills, but also encourage them to develop new ones as they may ask – or be asked – to work in new parts of the organisation. Some staff working on the market investigation side, for example, may want to move into enforcement: this “requires a degree of retraining,” he says, “and we want to be able to support that process.”

This training offer will, in turn, support a new flexible, project-based way of allocating staff. “We feel that the best way to get the most out of the organisation is to have real flexibility in the way we use resources,” says Chisholm. This must be built on “very clear expectations around what each project is trying to achieve, and what the milestones for it are.” A dedicated project management office has been established, along with an integrated intelligence function that will bring together all the sources of information on market performance and potential problems – enabling the CMA to make sound decisions on how best to prioritise its resources.

All of this makes for quite a striking set of changes for staff and external partners, and comes on top of regulatory changes in both the competition and consumer areas. Civil servants, too, might find themselves having more interactions with this politely expansionary advocate for competition. As Chisholm says: “It’s a big step to make a new institution – so we really want to make the most of it.

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