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THE GOVERNMENT'S PRINCIPLES FOR COMPETITION POLICY

	Since 1997, the Government has taken a series of steps to build a world-class competition regime in the UK.
	The Government's actions have been based on a clear set of principles, which also underpin the reforms in this White Paper:

	Competition decisions should be taken by strong, proactive and independent competition authorities.
	The regime should root out all forms of anti-competitive behaviour.
	There should be a strong deterrent effect.
	Harmed parties should be able to get real redress.
	Government and the competition authorities should work for greater international consistency and co-operation.
	Competition policy deserves a high profile ­ because of its importance for economic performance.

The Government is adopting a mission statement ­ setting out its objectives on competition policy, and what it promises to do to achieve them. This will help Parliament and others hold Government accountable for its actions.

3.1      The period since 1997 has seen significant changes to the UK's competition regime. Before then, the regime had remained largely unchanged for almost 20 years, even though it was clear for most of the period that our competition laws were out of date.

3.2      The Competition Act 1998 showed the Government's commitment to ensuring that the UK has a world-class competition regime. It provides a much stronger regime than previously. However, the Government has continued to look for ways in which the competition regime could be further improved. Box 3.1 lists the key steps the Government has taken to strengthen the regime since 1997.

Box 3.1: Steps to strengthen the UK's competition regime since 1997

a) The Government introduced the Competition Act 1998. This legislation introduced a modern regime to address anti-competitive agreements and abuses of dominant position.

b) The Government has announced reforms which will take Ministers out of most merger decisions and replace the current public interest test with a competition test.

c) The Financial Services and Markets Act 2000 gives the OFT and Competition Commission new powers to scrutinise the rules of the Financial Services Authority.

d) We have appointed a new Director General of Fair Trading, John Vickers, who has adopted a new goal for the OFT: "making markets work well for consumers".

e) The Treasury has increased the OFT's budget from £20 million in 1997 to a planned £32 million in this financial year, in order to improve radically the enforcement of competition law.

f) The Government has encouraged the OFT and the Competition Commission to look at consumer markets. In particular, the Banking reference followed the Cruickshank report into the industry. It looks at banking services for small and medium sized businesses ­ the inquiry is still underway.

g) The Government asked the OFT to conduct a review of competition and the professions. The OFT reported in March this year1 ­ and found that many professional rules did appear to have anti-competitive effects. They called on the Government to repeal the provision for exclusion of professional rules from the Competition Act 1998 ­ the Government has confirmed that it will do so. The Government will also be consulting on the OFT report to determine whether some of the professional rules identified are in the wider public interest. h) As part of the Criminal Justice and Police Bill, the Government aimed to allow our competition authorities increased opportunities to share information with overseas competition authorities ­ in order to assist them with their criminal inquiries. These provisions fell when Parliamentary time was curtailed. However, the Government remains committed to bringing legislation forward in this area. i) The Government has announced that it intends to legislate to transform the OFT into an Authority with a board. This would replace the current system where power is formally all vested in the Director General of Fair Trading, rather than the OFT as a whole. The Director General has already appointed an advisory panel to strengthen the external advice available to the OFT. j) The Government announced in the White Paper "Opportunity for all in a World of Change" (February 2001), that OFT and other regulators were being given an explicit role to assess when laws and regulations may inhibit competition. This would apply both to existing regulations and to the development of new legislation. 1 "Competition in professions", published March 2001, is available on the OFT's website: www.oft.gov.uk

Principles

3.3      These steps have been based on a clear set of principles:

• Competition decisions should be taken by strong, proactive and independent competition authorities: Before 1997, competition decisions were taken largely by Ministers. Since 1997, the new framework means decisions are increasingly taken by competition authorities ­ bringing the UK into line with most industrial countries. Key changes in this area are the introduction of the Competition Act and proposed changes to the merger regime. The Government has also sought to improve the effectiveness of the OFT. We have appointed a new Director General of Fair Trading, John Vickers, who has given the OFT greater direction by adopting a new goal: "making markets work well for consumers". The increased budget for the OFT has helped to improve the number and quality of its staff. The new advisory panel, and in future the OFT's board, will strengthen the strategic management of the OFT.
• The regime should root out all forms of anti-competitive behaviour: The Competition Act introduces a far more effective regime against anti-competitive agreements and abuses of dominant market position. Since 1997, our competition authorities have also looked at a number of consumer markets where it appeared that a lack of competition was acting against the interests of consumers. The OFT's recent review of the professions demonstrates the importance of ensuring that our competition authorities can highlight and take action against anti-competitive practices across the economy. The OFT's new role to scrutinise new and existing regulations will extend our regime into looking at the framework of laws and rules under which markets work.
• There should be a strong deterrent effect: By imposing fines against companies who engage in unlawful anti-competitive behaviour, the Competition Act strengthens the deterrent effect of our regime. In the past, firms which were found to have engaged in anti-competitive behaviour faced no penalties for their actions.
• Harmed parties should be able to get real redress: The Competition Act opens the way for those harmed or affected by unlawful anti-competitive behaviour to seek redress. Previously, damages were only possible where firms failed to comply with certain legal obligations ­ but not for anti-competitive behaviour itself.
• Government and the competition authorities should work for greater international consistency and co-operation: The Competition Act mirrors the EU regime ­ and so helps to ensure greater international consistency. The Government has already taken steps to ensure increased possibilities for disclosure of information to foreign competition authorities and recognises the importance of co-operation at an international level. Last autumn, the OFT also hosted a major international conference bringing together cartel investigators from 27 countries.
• Competition policy deserves a high profile ­ because of its importance for economic performance: Government has worked to improve business' and the public's understanding of the importance of competition policy for future prosperity. The OFT and the Competition Commission have also taken steps to raise awareness ­ for example, the OFT recently launched a major campaign to promote awareness of the Competition Act.

3.4      Despite the rapid pace of change in this area since 1997, the Government remains committed to improving the effectiveness of our competition regime. The recently completed peer review lends support to further change (see Box 3.2).

Box 3.2: Peer review of competition policy
The Government commissioned a peer review1 of the UK's competition regime to provide a benchmark against which to measure progress against the DTI's Public Service Agreement target of having 'the most effective competition regime in the OECD'.
The review asked over 100 competition experts from around the world to rank various aspects of the UK regime against that in their own country and against the EU regime. The key conclusions were:
	The UK regime ranks in the top half of its peer group, behind those of the US and Germany, but ahead of a number of other OECD regimes.
	Only 10% of British respondents thought that competition policy was important to the UK public. This compared with 83% in the USA.
	The complex monopoly provisions of the Fair Trading Act 1973 are particularly well regarded.
	The UK's current merger regime ranks less well, but respondents welcomed the merger reform proposals.
	83% of respondents in the UK believed that criminal penalties would improve the effectiveness of the UK regime, by increasing its deterrent effect.
The review recommended:
	Measures to enhance the status and role of competition policy in the UK.
	Measures to improve the visibility and transparency of the UK regime, and to give the OFT a more proactive role.
	Retaining the complex monopoly provisions of the Fair Trading Act, which are widely seen as a very useful part of the UK system.
	Considering the introduction of criminal sanctions.
1 "Peer Review of the UK Competition Policy regime", published April 2001, is available on the DTI's website: www.dti.gov.uk

3.5      The Competition Act 1998 allowed the UK to build the foundations of a modern competition regime after years of neglect. The Government is determined, however, to keep up the pace of change to ensure our regime is the best in the world. The reforms set out in this White Paper move further towards that goal.

Mission statement

3.6      The Government's primary responsibility is to set a strong pro-competition framework on the basis of the principles mentioned earlier.

3.7      Government itself should be held accountable for its actions in this area. To this end the Government will adopt a mission statement (set out in Box 3.3) setting out its objectives and what it promises to do to achieve them. The Government will report periodically on progress against the objectives set out in the mission statement.

Box 3.3: The Government's mission statement
The Government is committed to promoting competition in the economy to improve the UK's productivity performance and to make markets work well for consumers.
The Government will:
	Respect the absolute independence of our competition authorities.
	Not interfere in cases which are under investigation.
	Adopt remedies recommended by the Competition Commission except where there are exceptional public interest grounds not to do so ­ in such cases, Government will explain its reasoning fully.
	Ensure that the legal framework allows our competition authorities to address all forms of anti-competitive behaviour.
	Explain the importance of competition policy to the public, businesses and the media.
	Respond positively where the OFT, the Competition Commission or a sector regulator believes that regulations significantly undermine competition ­ publishing within 90 days a reasoned analysis of how Government intends to proceed.
	Appoint only those with expertise relevant to competition to the Competition Commission and only those with expertise relevant to competition or consumer protection to the OFT Board.
	Ensure that our competition authorities are properly resourced to meet their objectives.

3.8      This mission statement complements those issued by the OFT and the Competition Commission (reporting panel). Between them they will help ensure that Parliament and others can judge the actions of Government and our competition institutions against their aims.