Britain’s competition policy framework is changing. Earlier this year, the Government made a series of proposals for altering how the Competition and Markets Authority (CMA) operates. A public consultation on those proposals closed last month, and you can read our submission to it here. The King’s Speech announced the Competition Reform Bill, which will take these reforms forward.
While we were pulling together our initial response, we soon realised that awareness of the proposals was sorely lacking. When we got in touch with founders, investors and other key players in Britain’s entrepreneurship ecosystem, a worrying number replied to us saying this was the first they’d heard of the mooted changes. As such, we hope this article can go some way to redressing that.
Why policymakers are acting
In November 2024, the CMA set out its ‘4Ps’ approach, which would put improving the pace, predictability, proportionality and process at the heart of its work. Not long after, the Government issued its ‘Strategic Steer’ to the CMA, wherein it reiterated that “regulators have a key role to play in upholding and promoting the reputation of the UK as a centre for certain, proportionate and transparent regulation.”
To a large extent, the proposed changes can be understood against this backdrop. For both the CMA and the Government to make good on their intentions, the creation of new powers has evidently been deemed necessary.
It is also worth considering the changing business and technological landscape. Nobody can now ignore the dramatic impact artificial intelligence and algorithms are having on the economy — whether reinforcing the position of established firms, or allowing agile startups to scale rapidly. When technology is changing as radically as it currently is, it is only logical that the remit of regulators should be reviewed too.
What’s changing
The Government’s consultation spans a wide range of reforms, but four broad shifts stand out.
More discretion for the CMA
Decision-making within the CMA may become more centralised and discretionary. The Government consulted on abolishing the current panel system for Phase 2 investigations — wherein Phase 2 mergers are scrutinised by independent panel members operating separately from the CMA Board and from the staff who conducted the initial Phase 1 review. The consultation also proposed extending the timeframe for remedies to be agreed before moving on to Phase 2 investigation. The Bill did not give specifics on this but indicated that it will give businesses and the CMA more time at the early stages to engage and agree solutions. It further proposed replacing panel-led inquiry groups with committees drawn from the CMA Board itself.
The justification for this change is that it would increase accountability at board level, streamline processes and improve consistency. But there are fears that it may reduce the degree of outside expertise and independent challenge within the system, making it harder for businesses to anticipate how decisions will be made. To mitigate this, we believe merging parties should be granted the right to appeal adverse decisions on their merits and the right to access the CMA’s file on them. The Competition Reform Bill states that it will give the CMA Board “a role in decisions on mergers and market investigations” but does not confirm whether the panel system will be abolished.
Merging of the two-step system
The consultation proposed replacing the existing two-step market study and market investigation system with a more flexible, single-step review tool.
Currently, the CMA assesses whether there is an “adverse effect on consumers” in a market study and “adverse effect on competition” for market investigation. The consultation proposed merging the two into a single “adverse effect on consumers” test, which would allow the CMA to act in cases where the competition link is disputed but consumer harm is material. While adopting the lower threshold (for market study), the single tool could carry market-investigation remedial powers.
The Government committed to concluding most reviews within 18-24 months in the Competition Reform Bill, but did not clarify whether the replacement of the system would be the mechanism. In our response to the consultation, we pointed out that the 24-month baseline could increase uncertainty for businesses and recommended a shorter and more flexible timeframe combined with disciplined use of extensions.
Regular review of remedies
The consultation proposed a requirement for the CMA to consider sunset clauses on remedies and to review future remedies at least once every ten years. (Remedies are the corrective measures the CMA imposes after a market or merger investigation finds a competition problem.)
We think sunset clauses could ensure remedies remain proportionate and responsive to changing market conditions. For dynamic markets, such as AI or digital platforms, regular and proportional review of remedies is needed to ensure they don’t erect barriers for new entrants. We welcome the fact that the Competition Reform Bill commits to regularly reviewing all remedies placed on businesses and to concurrent regulators taking responsibility for ongoing remedies.
Algorithms in scope
The Government has proposed giving the CMA stronger powers to investigate how algorithmic systems operate in practice. As more startups build products around algorithms, scrutiny may increasingly extend into the design and deployment of core technologies.
Taken together, these reforms would see Britain’s overall competition regime adopt a more discretionary approach, and one that opens the door to more intervention. While we believe many of the proposed changes are well intentioned, we fear that they would render Britain a less attractive place in which to start, grow and invest in businesses.
How startups could be impacted
Why exits matter for founders
It is an all-too-common myth that successful entrepreneurs make their riches by bootstrapping a business and painstakingly seeing it through to being a profitable, money-making machine. Of course, some founders manage to do exactly that, and we applaud those who do. But for many more, the endgame is a little less romantic — to establish a promising startup with a deliberate intention to be acquired. That’s how most entrepreneurs and their early-stage investors make their returns. This is a feature, not a bug, and is the driver of innovation and economic growth that all startup hubs rely on.
This is why merger regimes matter. Even small shifts in how deals are assessed can have outsized effects upstream. If acquisitions become less predictable or harder to execute, investment invariably falls, as the likelihood of making a return declines. As such, capital becomes more difficult for companies to access, and the whole entrepreneurial ecosystem stutters.
The current consultation proposals would, we believe, increase uncertainty. The share-of-supply criteria and the material-influence criteria in the consultation proposals remain too broad to deliver real predictability and need to be addressed when the Bill is tabled. Separately, the Bill should clarify whether it adopts the proposed “adverse effect on consumers” test, which would broaden the scope for intervention and reduce predictability. Greater discretion for the CMA, combined with broader and more flexible intervention tools, would make it harder to anticipate which deals will be approved and on what basis.
It’s worth pointing out that a regime does not need to be blocking deals left, right and centre to change behaviour. What investors care about is predictability — and if they don’t think it’s there, they won’t be so ready and willing to back businesses. Over time, that can be enough to dampen acquisition activity and, with it, the dynamism of the startup ecosystem.
Operating under uncertainty
A country’s merger regime influences more than simply whether or not investors will cut cheques for startups. When regulators can consider a broad range of variables to establish jurisdiction over a merger, founders must be constantly aware of how they act. This can dictate decision-making on a day-to-day basis — determining, for example, whether or not they strike certain partnerships with other businesses, how they price their goods and services, if they’ll expand into new markets, and so on. Opportunities for growth may go unseized as a result.
Several of the proposed reforms risk increasing that burden on entrepreneurs. Broader legal tests would make it harder for businesses to anticipate when intervention is likely.
This is particularly acute in emerging sectors, where business models are novel and precedent is limited. A startup developing a new platform or AI-driven service may find it difficult to assess whether its conduct could later be subject to scrutiny.
From conduct to code
The consultation proposed an expansion of the CMA’s powers to investigate algorithms, which would mark a fundamental shift in competition policy, but was not included in the summary of the Competition Reform Bill.
Algorithms can shape market outcomes in powerful ways, and their importance will likely only increase over time. But it also raises difficult questions about the boundary between competition policy and conventional product regulation.
Traditionally, competition policy has focused exclusively on market structure and firm behaviour — including mergers, pricing and exclusionary conduct. Proposals to scrutinise algorithms in more detail, however, represent something altogether different.
For startups, the implications are significant. Many early-stage companies will rely on algorithmic systems as their core innovation. If those systems become subject to intensive scrutiny, the compliance burden may rise sharply. More importantly, the scope for experimentation may narrow, particularly in areas like AI where iteration and rapid deployment are central to progress.
There is a risk that, in attempting to regulate outcomes, policymakers inadvertently shape how products are designed in the first place. Beyond that, there is the more prosaic issue of compliance. Investigations could become a significant imposition on startups whose business depends on algorithms, further eroding Britain’s attractiveness as a place in which to operate such a business.
Getting the balance right
There is a credible case for updating Britain’s competition regime. Digital markets do present new challenges, and enforcement tools need to evolve accordingly. But reform should always be guided by an understanding of how business really works.
Predictability should be prioritised over discretion. Entrepreneurs and investors need to be able to reasonably anticipate how rules will be applied, particularly in fast-moving sectors.
Intervention should remain tightly focused on competition. Expanding the remit of competition policy to pursue broader social or economic goals risks diluting its effectiveness and increasing uncertainty.
And in areas like AI and algorithms, proportionality is essential. Scrutiny of any given technology must not come at the expense of experimentation at such a nascent stage, or end up placing an undue burden on businesses subject to investigations.
What next?
With a change of Prime Minister and reshuffling of ministers, the current legislative programme has been put on hold. Depending on the new legislative priorities of the incoming administration, it could shift its tone on competition or further tweak the Competition Reform Bill.
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