Government is trying to free up markets...by adding more red tape, warns DWF

28.03.2011

Laurence Pritchard, a partner in DWF's competition law team based in Liverpool, believes implementation of the changes announced this week by the coalition Government will have a negative impact on mergers effectively pushing up costs associated with doing deals, even where they raise no competition issues.

Mr Pritchard said: "We welcome the Government's desire to promote greater competition across the economy as this is recognised as being vital for a vibrant economy and fundamental to growth. Despite the UK competition law regime being recognised internationally as one of the most effective and efficient in the world, the Government believes that it could operate better, leading to the proposed plans for reform."

A major structural change is proposed through the abolition of the Competition Commission and the Office of Fair Trading, and their replacement by a single Competition and Markets Authority (CMA). Currently, the OFT operates as a 'phase one' regulator, taking an initial view of competition concerns, before passing these on to the Competition Commission for further investigation and remedial action (phase two) if deemed appropriate. The new single body, the CMA, will perform both phase one and phase two investigations.

Added Mr Pritchard: "Another major change which will affect most businesses will be in the area of merger control. The UK currently operates a voluntary merger regime where it is not compulsory to pre-notify potentially anti-competitive mergers to the OFT for clearance before they are completed. However, there are drawbacks to this system and to address these concerns the implementation of a mandatory pre-notification merger regime is proposed under which parties to mergers would be required to pre-notify them to the CMA before they were completed.

"The question arises as to which mergers would fall within this compulsory regime. The Government has put forward various proposals, but one of the more controversial ones would be a requirement for any acquirer with a turnover in excess of £10m to be required to pre-notify any deal where the target had a UK turnover in excess of £5m, irrespective of whether the acquirer and the target were competitors.  Not only would the deal have to be notified, but the parties would also have to pay fees to the CMA to cover the costs of the mandatory investigation. These fees could be as high as £12,000."

The introduction of compulsory merger notifications and the levying of substantial fees are difficult to reconcile with the Government's claimed commitment to reducing red tape on UK businesses, instead placing significant and expensive regulatory burdens on businesses, particularly small and medium-sized enterprises.

Ends

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