Dean Murray, competition partner at law firm Ward Hadaway

Dean Murray, competition partner at law firm Ward Hadaway

Is it a case of ‘no competition’ after Brexit?

With the UK set to leave the EU, what will happen to competition law and how will that affect companies here? Dean Murray, competition partner at law firm Ward Hadaway, takes a look.

Competition law in the UK has been heavily influenced by EU competition law. Accordingly, the UK’s decision to leave the EU, added to the Prime Minister’s announcement that the UK does not wish to remain part of the Single Market, suggests the possibility of a change in this area of law post-Brexit. This has the potential to create a marked effect on how companies here do business.

Currently, when competing on a European level, British businesses are governed by Articles 101 and 102 of the Treaty on the Functioning of the European Union. These provisions prevent the making of unduly restrictive agreements (including cartels), as well as preventing dominant businesses abusing their market power. These are mirrored on a UK level by the Competition Act 1998 which, for the time being, must be interpreted in light of European competition case law, although this is likely to cease following Brexit.

Therefore, although in the short-term it is unlikely that UK and European anti-trust policies will differ substantially, in the longer term there is likely to be more general divergence. As such, there is the potential for increased costs and bureaucracy with businesses potentially needing different measures in place for situations where they compete in both the European and UK markets.

The responsibility for competition law enforcement will also alter. Under the current arrangement, where a business’s practices have an ‘effect on trade between Member States’ the European Commission will investigate. Where the anti-competitive activity is limited to the UK, the Competition and Markets Authority (CMA) will consider the matter.

Post-Brexit there will be a real possibility of parallel investigations with both authorities investigating the same matter. This would increase the workload of the CMA, stretching its resources as well as increasing the burden and costs for UK businesses under investigation.

At the moment, company mergers are dealt with on a ‘one stop shop’ principle, whereby a merger with a ‘Community Dimension’, i.e. affecting other EU member states, is dealt with by the Commission and all others are dealt with by the relevant national authority.

However, post-Brexit it is likely that many deals will fall under the remit of both EU and national regimes – meaning purchasers may be obliged to make two merger filings. This is undesirable for a number of reasons including the fact that the UK merger process is lengthier than the EU process, and that the CMA charges a filing fee of £160,000 whereas there is no such fee for reporting mergers to the Commission.

This arrangement could also lead to a situation where the two authorities reach a different conclusion as to the permissibility of a proposed acquisition. Therefore companies should be sure to reconsider their existing merger filing approaches as well as reviewing the commerciality of proposed deals more generally.

State Aid is another key area for competition law. Currently, it is dealt with solely on a European level and there are no equivalent provisions under UK law. State Aid requirements are also only applicable to Member States, meaning that, post-Brexit, the UK will be allowed to provide aid to businesses without fear of European action. However, the UK will be bound by the World Trade Organisation Agreement on Subsidies and Countervailing Measures which controls a country’s use of financial subsidies in addition to providing remedies to counter any adverse effects. Nonetheless, the effects of this are less stringent than the current European requirements.

The loss of such restrictions does not mean the Government will automatically look to exploit its new-found freedom. Further, it is possible Government will seek to impose new national laws to restrict the ability of other state bodies to assist businesses.

State aid provisions have helped the UK by curtailing the financial support granted to businesses in other Member States. Such influence will be lost following Brexit, resulting in the potential for European growth that may be undesirable for UK business.

Whilst much of the rhetoric surrounding the EU referendum was about lightening the regulatory load, the burden when it comes to competition issues could actually become greater for UK businesses post-Brexit. This is perhaps another illustration that the most significant legal issue in the context of Brexit is the application of the law of unintended consequences.