Smith Commission recommends further competition powers for Scottish Ministers

On 27 November 2014, the Smith Commission published its highly-anticipated final report recommending the further devolution of powers from Westminster to Holyrood. In addition to its headline proposals on taxation, welfare spending and public borrowing, the report recommends important new powers in the area of competition policy and regulation.

The Smith Commission

Prior to the referendum on Scottish independence on 18 September 2014, all three main UK political parties promised more devolved powers for the Scottish Parliament in the event of a “no” vote. In the wake of the referendum, a cross-party Commission, led by Lord Smith of Kelvin, was tasked with agreeing a package of further devolved powers. The resulting report takes the form of a Heads of Agreement between the five political parties represented at Holyrood. The report’s recommendations introduce legislative and constitutional changes which, if enacted in law, will have a significant effect on Scotland’s economy and businesses operating in Scotland.

Competition policy – market investigation references to the CMA

The Smith Commission has proposed that Scottish Ministers should have the same powers as UK Government Ministers to make market investigation references under section 132 of the Enterprise Act 2002 (the EA02).

That power currently provides that UK Government Ministers can make a reference to the CMA for a full market investigation where either:

• a Minister is ‘not satisfied’ with a CMA decision not to make a reference following a market study; or
• where, having brought information to the attention of the CMA, which the Minister considers relevant to the question of whether a reference should be made, the Minister is not satisfied that the CMA will make a decision on a reference within such period as the Minister considers to be reasonable.

While Scottish Ministers already have the ability to request the CMA or one of the competent sector regulators (Ofgem, Ofcom, the ORR or the CAA) to carry out a ‘Phase 1’ market study to examine particular competition issues arising in Scotland, Scottish Ministers have no power similar to that held by UK Government Ministers.

The Smith Commission recommends that Scottish Ministers ‘have the power to require the CMA to carry out a full second phase investigation (in the same way as UK Ministers), after such an initial [market] study has been completed, in relation to competition issues arising in Scotland’ (Smith Commission Report, at para. 71). It is not entirely clear from this statement whether it is intended that Scottish Ministers also have the power to make a reference where they have brought information to the attention of the CMA and are not satisfied that a decision on a reference will be made within a time period they consider reasonable (see second bullet above). However, this can probably be presumed to be the intention.

If that new equivalent power is enacted as part of the extended devolution package for Scotland it is potentially a significant one. In recent years the powers under the EA02 to conduct market investigations have been used heavily by the CMA and its predecessor body the Office of Fair Trading (OFT).

In its response to the Smith Commission, the CMA noted that the OFT, Competition Commission and CMA have conducted 11 markets projects (calls for information, market studies and market investigations) involving ‘solely or significantly Scottish’ markets. Although the CMA indicated that most of its market analysis is carried out on a UK-wide basis, since there is a single UK market for most goods and services consumed by people in Scotland. It further noted that what may appear to be a local market, when investigated, can turn out to be much wider: the CMA cites the example of the attempted acquisition of Britvic by Scottish soft drinks manufacturer AG Barr, where the Competition Commission in the course of its Phase 2 merger investigation found that the relevant market was UK-wide.

Regulation – formal consultative roles in telecoms and energy regulation

The Smith Commission makes a number of recommendations regarding regulation. This includes recommending that the Scottish Government and the Scottish Parliament be granted formal consultative roles in setting the strategic priorities for the Office of Communications (Ofcom) and the Office of Gas and Electricity Markets (Ofgem). As regards Ofcom, this role is in relation to Ofcom’s activities in Scotland. As regards Ofgem, this role is in relation to the design of renewables incentives and strategic priorities set out in the Energy Strategy and Policy Statement to which Ofgem must have due regard.

Next steps

The Heads of Agreement set out in the report will now form the basis of draft legislation due to be published by the UK government by 25 January 2014. It is anticipated that enacting legislation will not be introduced until after the UK general election in May 2015.

Visit CMS’ Scot-Next website for clear, balanced and up-to-date information and news on what changes are being proposed in Scotland and how these proposals may affect your business and operations.